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PUBLIC OWNERSHIP AND THE 
TELEPHONE IN GREAT BRITAIN 



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PUBLIC OWNERSHIP AND 

THE TELEPHONE IN 

GREAT BRITAIN 



RESTRICTION OF THE INDUSTRY BY THE STATE 
AND THE MUNICIPALITIES 



BY 

HUGO RICHARD MEYER 

SOMETIME ASSISTANT PROFESSOR OF POLITICAL ECONOMY IN THE 

UNIVERSITY OF CHICAGO, AUTHOR OF "GOVERNMENT 

REGULATION OF RAILWAY RATES," "MUNICIPAL 

OWNERSHIP IN GREAT BRITAIN," "THE 

BRITISH STATE TELEGRAPHS" 



THE MACMILLAN COMPANY 

LONDON: MACMILLAN & CO., Ltd. 
1907 

All rights reserve^ 



I LiBtiARY of CONGRESS] 
j I wo Gootes Received j 

OCT i isor 

i /% Copyneht Entry 

\Ocit /<>oj 

l CLASS A XXc, No, 
j COPY 8. 



Copyright, 1907 
By THE MACMILLAN COMPANY 



Set up and electrotyped. Published October 1507 



THE MASON-HENRY PRESS 
SYRACUSE. NEW YORK 



TO MY WIFE 



CONTENTS 

CHAPTER I 

Page 

Introduction 3 

Scope of the Inquiry. 

CHAPTER II 

The Telephone Licenses of 1881 and 1884 ... 8 
The Government declines to buy the telephone patents. 
Mr. Justi-e Stephen holds that the telephone is an in- 
fringement of the Postmaster General's telegraph monop- 
oly. 7 he Government waives the Postmaster General's 
monopoly rights, upon terms designed to restrict the de- 
velopment of t*e telephone business. The Postmaster 
General by means of an administrative ruling infringes 
the statutory rights of the owners of the telephone 
patents. Public opinion compels the Government to 
relax somewhat its restrictive measures. The Govern- 
ment, in effect, refuses to permit the Post Office to 
engage in the telephone business. The refusal is 
prompted in part by the unsatisfactory working of the 
experiment of State telegraphs, inaugurated in 1868. 

CHAPTER III 

The Amalgamations of 1889-90 3° 

The United Telephone Company, owner of the master 
patents, establishes subsidiary companies for the several 
parts of the United Kingdom. Those companies subse- 
quently are consolidated into the National Telephone 
Company. The consolidation results in the issue of 
$ x 5»525,ooo of securities, which represent a cash outlay 
of $9,065,000. The injection of $6,460,000 of "water" is 
vii 



vnii CONTENTS 

not a stock market operation, so-called, but a necessary- 
incident in the upbuilding of a new industry. At the 
time of the consolidation the profits yielded by the tele- 
phone business were high ; but since then they have 
averaged about eight per cent, upon the capital actually 
invested. The "water" injected in 1889 to 1890 is elim- 
inated by 1903, through the practice of expending upon 
plant undistributed net earnings. 

CHAPTER IV 

The Compulsory Sale of the National Telephone Com- 
pany's Long Distance Service 39 

The growth of the National Telephone Company in 
the years 1885 to 1892, in spite of the lack of power to 
use the streets, thoroughly alarmed the Government, lest 
the telephone should largely replace the telegraph for 
the purpose of intra-city as well as inter-city communi- 
cation. The Post Office Telegraphs were in no position 
to meet the competition of the telephone, because of the 
mismanagement brought about by the intervention of 
the House of Commons. On the other hand, the public 
demand for a better as well as a more extensive tele- 
phone service, made it impossible for the Government 
to continue to deny the National Telephone Company 
way-leaves. Under the circumstances the Government 
resolved to give the National Telephone Company 
moderate way-leaves; and to protect the Treasury's 
interest in the State Telegraphs by compelling the 
National Telephone Company to sell its long-distance 
telephone plant and withdraw from the business of pro- 
viding inter-city communication. The National Tele- 
phone Company under compulsion acceded to the Gov- 
ernment's proposal. Dr. Cameron, M. P., Glasgow, 
moved that the Government purchase the entire busi- 
ness of the National Telephone Company, local as well 
as long-distance; but the House of Commons rejected 
the motion, after the Government had protested that 
the increase in the State employees involved in Dr. 
Cameron's proposal would constitute a grave political 
danger. 



CONTENTS ix 

CHAPTER V 

The Post Office Fails to Provide an Adequate Long- 
distance Service . 6$ 

The fear of "log-rolling" induces the Government to 
adopt the policy of making no extensions of the long- 
distance telephone service, unless no financial risk is in- 
volved, or, the districts to be served shall guarantee "a 
specific revenue per year, fixed with reference to the 
estimated cost of working and maintaining a given 
mileage of trunk line wire." Evidence in detail that 
the Government has failed to provide adequate long- 
distance telephone facilities. Thus far no Government 
elected directly or indirectly by universal manhood suf- 
frage has been able to husband its resources so as to 
be able properly to finance such industrial ventures as 
it may have undertaken. In that respect the experience 
of Great Britain has been a repetition of the experience 
of France, Italy, Australia and Prussia. 

CHAPTER VI 

The Refusal of Way-Leaves 74 

The telephone licenses of 1881 and 1884 merely waived 
the Postmaster General's monopoly rights; they con- 
ferred no power to erect poles in the streets, or to lay 
wires underground; so that, in cities and towns, the 
telephone wires had to be strung from house-top to 
house-top. As late as 1898, no less than 120,000 miles 
of wire, out of a total of 143,000 miles of wire were sc 
strung. The system of house-top wires rendered it im- 
possible to provide a telephone service satisfactory in 
quality or adequate in extent ; and it delayed for years 
the replacement of the earth-return circuit by the metal- 
lic circuit. The National Telephone Company in 1884, 
1885, 1888, 1892, 1893 and 1899 asked Parliament for 
statutory power to use the streets, but the Postmaster 
General invariably refused to permit the Company's 
Bills to proceed, though Parliamentary Select Com- 
mittees in 1885 and 1893 had urged strongly that the 
telephone companies be given adequate powers of way- 



x CONTENTS 

leave. Down to 1892, the Postmaster General, repre- 
senting the Government of the day, was influenced solely 
by the desire to protect the State Telegraphs by hamper- 
ing the telephone. In the latter year, the Government 
became willing to give the National Telephone Company 
certain moderate powers of way-leave ; but it had to bow 
to the will of the Association of Municipal Corporations, 
and give the local authorities the power to veto the 
exercise of any powers of way-leave that the Post- 
master General at any time might confer upon the 
National Telephone Company. The local authorities 
demanded the power of veto, not in order that they 
might regulate the time and manner of opening the 
streets, but in order that they might exact payment for 
the use of the streets, as well as prescribe the charges 
which the National Telephone Company should make to 
its subscribers. The Association of Municipal Corpora- 
tions had demanded that Parliament itself fix those 
charges, as well as prescribe the maximum dividends 
which the Company might pay; but the Government 
had rejected that demand, lest Parliament should pre- 
scribe unremunerative rates. The Government had an 
interest in the telephone charges being kept on a re- 
munerative basis, for it contemplated taking over the 
entire telephone business on December 31, 191 1. The 
Government also received each year 10 per cent, of the 
National Telephone Company's gross earnings by way 
of royalty. Manchester, in 1894, was the first city to 
give the National Telephone Company permission to 
use the streets ; and as late as September, 1897, only fifty- 
nine cities in the United Kingdom had followed Man- 
chester's example. 

CHAPTER VII 

The Duke of Marlborough's Promise and Retraction . . 99 
In August, 1891, the Duke of Marlborough, the head 
of The New Telephone Company, announced that his 
Company could make a profit of 12 per cent, to 15 per 
cent, a year while giving Metropolitan London an "un- 
limited user" service at $50 or $60 a year. Tn Septem- 



CONTENTS xi 

ber, 1892, after The New Telephone Company had been 
absorbed by the National Telephone Company, the 
Duke of Marlborough withdrew his previous statements, 
saying he had "bleated a good deal about a $50 tele- 
phone." The prospectus of The New Telephone Com- 
pany had announced that the cost of installing telephone 
exchanges would average about $170 per subscriber's 
wire, in the United Kingdom as a whole. At that time 
the National Telephone Company's capitalization was 
$350 per telephone in use, of which sum about $120 was 
"water." A large and influential section of the public 
refused to accept the Duke of Marlborough's retraction ; 
and to this day it has insisted that a telephone plant 
could be installed in Metropolitan London for less than 
$200 per subscriber's wire, and that an unlimited user 
service could be given for $50 a year per subscriber. 
Engineering estimates to that effect were submitted to 
Parliamentary Select Committees by the London County 
Council in 1895 and 1898. Mr. W. H. Preece, Engineer- 
in-Chief to Post Office, and Mr. J. C. Lamb, assistant 
Secretary to Post Office, rejected those estimates. In 
March, 1906, the Post Office Metropolitan London tele- 
phone plant had cost $270 per telephone in use. The 
Post Office, upon opening its Metropolitan London tele- 
phone exchanges, in March, 1902, rejected the public 
request for a $50 unlimited user tariff. It established 
an unlimited service tariff of $85 a year, but only in 
deference to public opinion. It would have preferred to 
establish the measured service tariff exclusively, believ- 
ing that the unlimited service tariff is unsound in prin- 
ciple, and defensible only on grounds of political ex- 
pediency. 

CHAPTER VIII 

The Select Committee of 1895 115 

A Select Committee of the House of Commons is ap- 
pointed to inquire and report "whether the provision 
now made for the telephone service in local areas is 
adequate, and whether it is expedient to supplement or 
improve the provision by the granting of licenses to 



*a CONTENTS 

local authorities or otherwise.'' Mr. W. H. Precce, 
Engineer-in-Chief to Post Office, and Mr. J. C. Lamb, 
Assistant Secretary to Post Office, reject the engineering 
estimates submitted by the advocates of municipal tele- 
phone exchanges. Mr. Lamb argues that under the ex- 
isting arrangements the Government is able to protect 
the rights of the public as users of the telephone; that 
the establishment of competing municipal telephone 
exchanges would be liable to result in the telephone 
tariffs becoming unremunerative, a state of things to be 
avoided, seeing that the Post Office in all probability 
would take over the entire telephone business on 
December 31, 191 1. The testimony of Mr. H. E. Clare, 
Deputy Town Clerk of Liverpool, and official repre- 
sentative of the Association of Municipal Corporations, 
shows that the members of the Association at heart are 
aware that the policy of limiting the life of franchises 
and providing for compulsory sale at structural value, 
checks the investment of capital and raises the cost of the 
service to the public. The Committee makes no report; 
but its chairman, the Postmaster General, is said to have 
submitted a draft report disapproving the policy of 
granting telephone licenses to the municipalities. 

CHAPTER IX 

The London County Council Episode .... 125 
From 1890 to 1899, the National Telephone Company 
in vain applied to the London County Council for per- 
mission to put its wires under the streets. In 1899 
negotiations were broken off, and the deadlock thus 
established was finally broken by the Post Office in 
November, 1001. The London County Council tried to 
use the power of veto given it by the Act of 1892, first, 
for the purpose of prescribing the National Telephone 
Company's tariff; second, for the purpose of compelling 
the Company to agree to grant free intercommunication 
between its subscribers and the subscribers to the pro- 
posed Post Office Metropolitan London Telephone Ex- 
changes. From 1899 to 1901, inclusive, the Post Office 
cooperated with the London County Council in blocking 



CONTENTS xiii 

the efforts of the National Telephone Company to get 
underground way-leaves in the Administrative County 
of London, area 121 square miles. 

CHAPTER X 

The City of London Episode 133 

The City of London, desiring to compel the National 
Telephone Company to permit the city authorities to fix 
the Company's tariff, never has given its consent to the 
National Telephone Company laying its wires under the 
streets or erecting poles in the streets. In November, 
1901, the Post Office overrode the City of London, con- 
tracting to lay such underground wires for the Company 
as it should suit the pleasure of the Post Office to let 
the Company have. 

CHAPTER XI 

The Glasgow Episode 139 

The National Telephone Company asks the Corpora- 
tion of Glasgow for underground way-leaves, in order 
that it may replace its earth-return circuit with a metal- 
lic circuit, and thus give the public an efficient as well 
as an adequate service. The Corporation refuses way- 
leaves, for two reasons. First, it wishes the Company's 
service to remain bad, in order that it may create a public 
dissatisfaction which shall compel the Government to 
abandon its past policy of refusing to give any local 
authority a telephone license. Second, after obtaining 
a telephone license, Glasgow proposes to install an 
underground metallic circuit plant, and to destroy the 
Glasgow plant of the National Telephone Company, 
that Company being handicapped by lack of underground 
way-leaves. In September, 1897, the Government ap- 
pointed Andrew Jameson (now Lord Ardwall), Sheriff 
of Perthshire, a Commissioner to inquire into the tele- 
phone service at Glasgow. The Commissioner reported 
that the continued inefficiency of the telephone service 
at Glasgow for the most part was due to the Corpora- 
tion's refusal to give the National Telephone Company 



xiv CONTENTS 

underground way-leaves; that such refusal was neither 
reasonable nor justifiable on grounds of public policy or 
any other grounds, unless it be deemed that the Corpora- 
tion were justified in their refusal because they desired 
to establish a municipal telephone system, and to place 
the National Telephone Company "at an enormous dis- 
advantage" in competing with them for the patronage 
of the public. 

CHAPTER XII 

Mr. R. W. Hanbury, Financial Secretary to the Treas- 
ury, and Representative, in the House of Commons, 
of the Postmaster General, the Duke of Norfolk, 
Attacks the National Telephone Company . .177 

Mr. James Caldwell, M. P. for Lanark, makes a motion 
asking the Government to a'bandon its past policy of re- 
fusing to grant telephone licenses to local authorities. 
The motion is seconded by Mr. G. Boscawen, M. P. 
for Kent, Tunbridge, and Private Secretary to the Chan- 
cellor of the Exchequer, Sir Michael Hicks-Beach. Mr. 
R. W. Hanbury replies on behalf of the Government, 
offering to refer to a Select Committee the question of 
municipal telephone licenses. He prefers a series of 
charges which prove most damaging to the National 
Telephone Company, though they would not have 
passed muster with a well informed body of listeners or 
readers. Why Parliament and the public were not well 
informed. 

CHAPTER XIII 

The Evidence Presented Before the Select Committee of 

1898 194 

The House of Commons orders the appointment of a 
Select Committee to consider and report upon the ques- 
tion of granting telephone licenses to local authorities. 
Sir Robert Hunter, Solicitor to Post Office, urges the 
necessity of giving the National Telephone Company 
adequate way-leaves. Mr. Forbes, Chairman National 
Telephone Company, and Mr. Gaine, General Manager,, 



CONTENTS xv 

argue that under the burdens and disabilities imposed 
upon the Company by Parliament, the Company's 
charges must necessarily be relatively dear, while its 
service must be less adequate and less efficient than the 
Company would wish. Mr. Arnold Morley, Postmaster 
General from 1892 to 1895, as well as Mr. J. C. Lamb, 
Assistant Secretary to Post Office, express themselves 
against competition in the telephone business. The As- 
sociation of Municipal Corporations expresses itself in 
favor of municipal telephone exchanges, as the alterna- 
tive to the Post Office taking over the entire telephone 
business. The evidence as to the manner in which the 
National Telephone Company exercised its right to re- 
fuse service. The evidence as to Company's policy and 
practice in the matter of establishing telephone exchang- 
es in small places and in thinly populated districts. 

CHAPTER XIV 

The Report of the Select Committee, 1898 . . .215 
The Select Committee makes a report that is not sup- 
ported by the evidence that had been presented. It 
recommends "immediate and effective competition by 
either the Post Office or the local authority," though 
there is grave doubt whether Parliament and the Gov- 
ernment can authorize such competition without violat- 
ing "the equity of the understanding" that had obtained 
between the Government and the National Telephone 
Company at the time of the so-called purchase of the 
long-distance telephone wires, in the year 1892. 

CHAPTER XV 

Parliament Authorizes All-Round Competition with 

the National Telephone Company .... 239 

Mr. R. W. Hanbury, Financial Secretary and Repre- 
sentative of the Postmaster General, speaks of the Na- 
tional Telephone Company as if it were a public enemy, 
if not a criminal. The Telegraph Act, 1899, authorizes 
unfair competition with the National Telephone Com- 
pany. It knocks fully 25 per cent, off the market value 



xvi CONTENTS 

of the National Telephone Company's securities; and it 
makes Mr. Hanbury a member of the Cabinet. In all 
other respects it is an utter failure. It is partially 
abandoned in 1901, and completely abandoned in 1905. 
The reason for the complete failure of the Telegraph 
Act, 1899, is the conservatism of the local authorities, 
and the inability of adjoining local authorities to co- 
operate. 

CHAPTER XVI 

The Metropolitan London Agreement, 1901 . . . 269 
The Post Office harasses the National Telephone 
Company into granting a request which the Post Office 
could not make with fairness, to-wit, free intercommuni- 
cation between the Company's Metropolitan London sub- 
scribers and the subscribers to the proposed Post Office 
Metropolitan London telephone exchanges. So far as 
Metropolitan London is concerned, the Government 
abandons the Telegraph Act, 1899, in November, 1901. 
The act achieved nothing of benefit to the public that 
could not have been attained in 1899 by means of friendly 
negotiation with the National Telephone Company. 

CHAPTER XVII 

The Agreement of 1905 387 

The Telegraph Act, 1899, proves a complete failure 
also for that part of the United Kingdom known as the 
Provinces; and it is abandoned in February, 1905. The 
Post Office agrees to purchase, at reconstruction value, 
on December 31, 191 1, the National Telephone Company's 
plant. That arrangement will get the Company out of 
the way, in 191 1; and will leave Parliament free to 
determine whether the local telephone service — as dis- 
tinguished from the long-distance service — thenceforth 
shall be conducted by the Post Office or by the local 
authorities. The agreement is referred to a Select 
Committee of the House of Commons, which Committee 
makes two recommendations which the Government de- 
clines to accept, on the ground that they would be 



CONTENTS xvii 

respectively "an infringement of a statutory right" 
and a "most unfair" action. A third recommendation 
made by the Committee, if it had been carried out, 
would have inflicted upon the holders of the securities 
of the National Telephone Company even more serious 
loss than had inflicted the Report of the Select Committee 
on Telephones, 1898, and the Telegraph Act, 1899. The 
agreement of 1005 will leave the British public without 
an adequate telephone service until December 31, 1911. 

CHAPTER XVIII 

The Municipal Telephone Exchanges of Glasgow, 
Brighton, Hull, Swansea, Portsmouth and Tun- 
bridge Wells 312 

The Corporation of Glasgow embarks in the telephone 
business, expecting to install a plant for about $95 per 
subscriber's line. In May, 1906, its expenditure had 
been $183 per subscriber's line. The corporation lays its 
wires under the streets ; at the same time denying the 
National Telephone Company all public way-leaves. It 
expects to destroy the Company's business in Glasgow; 
but it is beaten "ta.a stand-still." In September, 1906, 
the Corporation sold its plant to the Post Office for 
$1,525,000, that is, at a net loss of $58,980. Shortly 
afterward the Postmaster General announced that he 
would have to reconstruct the main exchange, as well 
as replace every one of the 12,800 subscribers' telephones 
in use. Those operations probably will cost from $500,- 
000 to $750,000. The Postmaster General also an- 
nounced that he would have to revise, that is, raise, 
the tariffs enforced by the Corporation. 

In October, 1906, the Postmaster General paid the 
Corporation of Brighton $245,000 for its telephone 
plant, enabling the corporation to withdraw with a loss 
of $12,250. To the Corporations of Hull, Swansea and 
Portsmouth, the Postmaster General offered consider- 
ably less than these corporations had expended upon 
plant. Swansea subsequently sold its plant to the Na- 
tional Telephone Company. Tunbridge Wells, the only 
other municipality that had gone into the telephone 



xviii CONTENTS 

business, had sold out to the National Telephone Com- 
pany in November, 1903, after two and one-half years 
of operation. 

CHAPTER XIX 

The Post Office Monopoly and Wireless Telegraphy . 337 
The Government, in 1889, resolved to acquire the 
monopoly of submarine telegraphy to neighboring 
European countries. In 1896, it failed to purchase the 
patents of Mr. Marconi, inventor of wireless telegraphy. 
In 1904, the Government carried the Wireless Teleg- 
raphy Act, largely for the purpose of protecting the 
revenues of the Government submarine cables. The 
Government curtails the use of wireless telegraphy both 
across sea and overland. The Government hampers 
the Boy Messenger and District Service Companies, for 
the purpose of protecting the Post Office Monopolies. 
An episode from the reign of Charles II. 

CHAPTER XX 
Conclusion 348 

Index 365 



PUBLIC OWNERSHIP AND THE 
TELEPHONE IN GREAT BRITAIN 



CHAPTER I 

Introduction 

SCOPE OF THE INQUIRY 

Four factors have shaped the telephone policy of 
Great Britain. They have been : the desire of the State 
to protect the national telegraphs from competition from 
the telephone ; the Duke of Marlborough's letters to The 
Times, alleging that it was possible to supply telephone 
service to Metropolitan London on the basis of $50 a 
year for unlimited user ; the desire of the Municipalities 
to regulate the charges of the National Telephone Com- 
pany, a licensee of the Postmaster General; and the 
political ambition of Mr. R. W. Hanbury, who, as Fi- 
nancial Secretary to the Treasury, in the period from 
1895 to 1900 represented in the House of Commons, the 
Postmaster General, the Duke of Norfolk. 

The Government having acquired the monopoly of 
the telegraph business in 1869, the logical thing for it 
to do upon the appearance of the telephone, in 1876-77, 
would have been to purchase the rights of the patentees 
of the telephone, and to make the telephone a supple- 
ment to the telegraph. But the Government was unwill- 
ing to engage in any further industrial ventures, because 

3 



4 THE TELEPHONE IN GREAT BRITAIN 

of the unsatisfactory working of the experiment of na- 
tional telegraphs inaugurated in 1868. Under the cir- 
cumstances the Government granted companies licenses 
to engage in the telephone business, incorporating in 
those licenses various restrictions upon the licensees, 
designed to protect the State telegraphs from the tele- 
phone. In 1884, 1892, 1899, 1901 and 1905, the Gov- 
ernment changed, or modified, its telephone policy ; but 
it always adhered to two principles : to protect the State 
telegraphs as much as public opinion would permit ; and 
to secure the ultimate purchase of the licensees' tele- 
phone plants at cost of replacement, that is, with no 
allowance for earning power or good-will. The Gov- 
ernment invariably preferred the interests of the 
national treasury to the rights of the public as users of 
the telephone. 

In the fall of 1891, the Duke of Marlborough in- 
augurated a campaign on behalf of The New Telephone 
Company, alleging that the Company could make a profit 
of 12 to 15 per cent, a year while serving Metropolitan 
London under a tariff of $50 a year for unlimited user 
service. In the fall of 1892, after The New Telephone 
Company had been absorbed by the National Telephone 
Company, the Duke of Marlborough retracted the state- 
ments made in The Times letters, saying that he had 
"bleated a good deal about a $50 telephone." A large 
and influential section of the public refused to accept 
the Duke of Marlborough's retraction; and continued 



INTRODUCTION 5 

to demand for Metropolitan London an unlimited user 
tariff of $50 a year, and for the large cities outside of 
London an unlimited user tariff of $25 a year. Those 
demands were supported also by the argument that the 
National Telephone Company could afford to grant the 
aforesaid rates were it not for the fact that in the year 
1890 the National Telephone Company had raised its 
capitalization to $15,525,000, through the injection of 
$6,460,000 of "water." 

Down to 1892 the Government adhered to the policy 
that the National Telephone Company should have no 
right to erect a pole in a street or to lay a wire under a 
street, lest the telephone should become too formidable 
a competitor of the State telegraphs. In 1892, the 
Government modified its past policy, and became willing 
that the Company should have such rights to erect poles 
in the streets and to lay wires under the streets as the 
Postmaster General should see fit to let the Company 
have from day to day and from place to place. There- 
upon the Association of Municipal Corporations, one of 
the most powerful political organizations in England 
and Wales, demanded for the local authorities the right 
to veto the exercise of any way-leave powers that the 
Postmaster General at any time or in any place might 
confer upon the National Telephone Company. The 
local authorities demanded the power of veto in order 
that they might be able to make a charge for the use 
of the streets, as well as fix the tariffs of the National 



6 THE TELEPHONE IN GREAT BRITAIN 

Telephone Company. They were given the power of 
veto ; and they used it in such a way as to retard for a 
number of years the replacement of the earth-return 
circuit telephone by the metallic circuit telephone. 
Some local authorities, such as the London County 
Council, the Corporation of the City of London, the 
Corporation of Glasgow and the Corporation of Brigh- 
ton, never have given the National Telephone Company 
power to erect a pole in a street or to lay a wire under a 
street. 

For all practical purposes the National Telephone 
Company remained without way-leaves in the streets 
until the year 1897. The resulting inadequacy and 
inefficiency of the service offered the public by the 
National Telephone Company, led to widespread popu- 
lar dissatisfaction with the Company. In 1898, Mr. 
R. W. Hanbury, Financial Secretary to the Treasury 
and Representative in the House of Commons of the 
Postmaster General, the Duke of Norfolk, resolved to 
take advantage of the aforesaid widespread discontent, 
and to make himself the parliamentary leader of the 
rising movement in favor of municipal telephone ex- 
changes. Mr. Hanbury's parliamentary activity re- 
sulted in the enactment of the Telegraphs Act, 1899. 
That measure, in the year 1900, made Mr. Hanbury a 
Member of the Cabinet in the reorganized Salisbury 
Ministry; and it knocked fully 25 per cent, off the 
market value of the securities of the National Tele- 



INTRODUCTION 7 

phone Company. In all other respects it was a com- 
plete failure. In 1901 and 1905, respectively, the Tele- 
graphs Act, 1899, in effect was repealed by the political 
Party which had enacted it. 

The policy of municipal competition with the Na- 
tional Telephone Company proved a complete failure, 
partly because of the conservatism of the municipalities, 
partly because of the inability of adjoining municipali- 
ties to overcome parochial jealousies and to cooperate 
in supplying a common telephone service. 

Glasgow entered upon the telephone business with 
the avowed purpose of destroying the National Tele- 
phone Company's business and property in Glasgow. 
It was beaten "to a stand-still" by the Company. 

The municipal telephone ventures of Brighton, Hull, 
Portsmouth, Swansea and Tunbridge Wells were no 
more successful than the Glasgow venture. 

In 1 90 1 and 1905, respectively, the Government con- 
tracted to purchase on December 31, 191 1, at cost of 
replacement, the property of the National Telephone 
Company. At that date Parliament will decide whether 
the Post Office shall retain possession of the property 
purchased of the National Telephone Company, or shall 
sell the property to the several local authorities. 



CHAPTER II 

THE TELEPHONE LICENSES OF 1881 AND 1884 

The Government declines to buy the telephone patents. Mr. 
Justice Stephen holds that the telephone is an infringement of 
the Postmaster General's telegraph monopoly. The Government 
waives the Postmaster General's monopoly rights, upon terms de- 
signed to restrict the development of the telephone business. The 
Postmaster General by means of an administrative ruling in- 
fringes the statutory rights of the owners of the telephone pat- 
ents. Public opinion compels the Government to relax somewhat 
its restrictive measures. The Government, in effect, refuses to 
permit the Post Office to engage in the telephone business. The 
refusal is prompted in part by the unsatisfactory working of the 
experiment of State telegraphs, inaugurated in 1868. 

In December, 1876, and July, 1877, respectively, 
Mr. Graham Bell and Mr. Edison obtained from the 
British Government patents for the telephone. In 
1878, Professor Hughes, of England, invented — but 
refused to patent — the microphone, which made the 
telephone "commercially" available. In that same year 
was established the Telephone Company, Limited, which 
acquired Mr. Bell's patent rights for the United King- 
dom. In the following year was established the Edi- 
son Telephone Company of London, which acquired 
Mr. Edison's rights for the United Kingdom. Litiga- 
tion over patent rights between the two companies soon 
followed. Partly for the purpose of ending that litiga- 



TELEPHONE LICENSES OF 1881 AND 1887 9 

tion, both companies began negotiations with the Post 

Telephone Patents ° ffice forthe Sale ° f thdr P^ent rights. 1 
offered to Those negotiations failed; and in May, 

Government lg8o> the United Telephone Company, 

Limited, purchased the patent rights of the litigants 
for the sum of $1, 500,000. 2 

In the meantime, in 1878, the Government had made 
an unsuccessful effort to protect the State Telegraphs 
from the Telephone. While the Telegraph Bill, 1878, 
had been before the House of Lords, the Postmaster 
General had inserted the following clause : "The term 
telegraph in addition to the meaning assigned to it by 
that Act [of 1869] shall include any apparatus for 
transmitting messages or other communications with 
the aid of electricity, magnetism, or any other like 
agency." The House of Commons, however, had re- 
jected the clause, and the Government had acquiesced. 3 
Dr. Cameron, M. P., for Glasgow, College Division, 
has stated that he induced the Government to accept the 
rejection, the clause in question appearing to him to be 
a proposal to confiscate the property of the patentees. 

1 The Times; January 20, 1899: The Case of the National 
Telephone Company, by a Correspondent ; and Hansard's Parlia- 
mentary Debates; March 29, 1892, p. 167, Dr. Cameron, Glasgow. 
Compare : Report from the Select Committee on the Telephone 
Service, 1895 ; q. 9, Mr, J. C. Lamb, Assistant Secretary to Post 
Office. 

2 Report from the Select Committee on the Telephone Service, 
1895 ; q. 4963, Mr. J. S. Forbes, Chairman National Telephone 
Company. 

3 Hansard's Parliamentary Debates; July 29, 1884; p. 869, Mr. 
W. E. Gladstone, First Lord of the Treasury; August 7, 1884, p. 143, 
and March 29, 1892, p. 166, Dr. Cameron. 



10 THE TELEPHONE IN GREAT BRITAIN 

In the fall of 1879, the Edison Telephone Company 
of London announced that it would establish telephone 
exchanges in Metropolitan London ; and on November 
27, and December 20, 1879, respectively, the Post- 
master General, through the Attorney-General, brought 

suit against the Edison and Bell Com- 
Postmaster . & . ._ 

General's Mo- pames for infringement of the Post- 

nopoly covers master General's monopoly acquired 
under the Telegraph Act, 1869. The 
case was tried before Mr. Baron Pollock and Mr. Jus- 
tice Stephen, of whom the latter rendered the verdict, 
on December 20, 1880. 1 The Court held that "every 
organized system of communication by means of elec- 
tricity, and any communication by means of wires ac- 
cording to any preconcerted system of signals, were 
within the monopoly conferred under the Act of 1869." 2 
The decision, it will be noted, held that the Postmaster 
General's Monopoly covered future inventions. 

The United Telephone Company, in December, 1880, 
made preparations to appeal from the decision of Mr. 
Justice Stephen. Thereupon the Postmaster General 
offered to grant the Company licenses to establish and 
operate telephone exchanges, on condition that the 
Company waive their right of appeal. 3 The offer was 
accepted. Many years later, the patentees of the ap- 

1 Law Reports, 6 Queen's Bench Division, p. 244. 

2 Report from the Select Committee on Telephones, 1898; q. 3 to 
5, Sir Robert Hunter, Solicitor to Post Office. 

8 Report from the Select Committee on Telephone and Telegraph 
Wires, 1885; q. 1247 to 1250, Mr. J. S. Forbes, Deputy Chairman 
United Telephone Company. 



TELEPHONE LICENSES OF 1881 AND 1887 11 

paratus for wireless telegraphy also acquiesced in the 
decision rendered by Mr. Justice Stephen in 1880. 

The licenses conferred by the Postmaster General 
merely waived the monopoly rights of the Post Office ; 
they did not confer "power to erect poles and wires on, 
or to place wires under, any highway or private prop- 
erty." Such power was to be obtained from the local 
authorities and private persons concerned. Nor did 
the Postmaster General waive the right of the Post 
Office to install and operate telephone exchanges ; or to 
grant licenses to companies other than the United Tele- 
phone Company or its offspring companies. In fact, 
the Post Office immediately established telephone ex- 
changes in several of the so-called provincial towns ;* 
and in July, 1882, Mr. Fawcett, Postmaster General, 
made the following announcement in the House of 
Commons : "After giving the matter very careful con- 
sideration, I have come to the conclusion that it would 
not be in the interest of the public to create a monopoly 
in relation to the supply of telephonic communication. 
I am, therefore, prepared to favorably entertain the 
proposals that may be made to me by responsible per- 
sons to grant new telephone licenses under conditions 
which may be regarded as giving adequate protection! 
to the public and the Department. In case it may be 
supposed that inconvenience may arise from the multi- 

1 Report from the Select Committee on Telephones,, 1898; q. 1109, 
Mr. J. C. Lamb, Second Secretary to Post Office ; and Parliamentary 
Paper, No. 201, 1899. 



12 THE TELEPHONE IN GREAT BRITAIN 

plication of wires, I may remark that the license of the 
Postmaster General to establish a telephone exchange 
confers no special power whatever to erect poles and 
wires on, or to place wires under, any highway or 
private property. The persons to whom a license may 
be given will have to make their own arrangements 
with the local authorities." 1 

The licenses granted in 1881 and the subsequent years 
contained a number of restrictions designed to protect 
the Post Office telegraphs from serious competition; 
Th St t T le- an< ^ to re i m burse the Post Office for 
graphs are such limited competition as it permitted. 

Protected gy wa y Q £ r0 y a ities the telephone com- 

panies were to pay 10 per cent, of their gross receipts. 
In London, the companies were restricted to areas with 
a radius of 4 or 5 miles ; in the provincial towns they 
were restricted to areas with a radius of 1 or 2 miles. 
In a few cases the areas were made larger, the 
royalties at the same time being raised to 12.5 per cent, 
of the gross receipts. The companies were not allowed 
to open public pay stations, lest the latter should inter- 
fere with the Post Office Telegraphs' extensive traffic 
in intra-city telegrams. In the case of one city, Man- 
chester, the Post Office offered to permit the install- 
ment of public pay stations, provided that the charge 
be 24 cents per conversation, which sum represented 
the cost of a twenty word intra-city telegram. The 
local company at Manchester had desired to popularize 

1 Hansard's Parliamentary Debates; July 17, 1882. 



TELEPHONE LICENSES OF 1881 AND 1887 13 

the telephone by making the public pay station charge 
two cents per conversation. Nor were the telephone 
companies permitted to build so-called trunk lines from 
city to city, lest the long distance telephone should com- 
pete with the inter-city Post Office Telegraphs. The 
Post Office offered to build telephone trunk lines for the 
companies on the basis of the payment of an annual 
rental of $50 per mile of double wire, plus 50 per cent, 
of the gross receipts. The Lancashire and Cheshire 
Company, which operated in a region covered with 
busy manufacturing centers, offered to pay the Post 
Office the annual rental of $50 per mile, on condition 
that the Company be permitted to give its subscribers 
the free use of the trunk lines, in order that it might 
popularize the telephone. The Post Office rejected the 
offer, stating that the Company must charge subscrib- 
ers who desired to use the trunk lines an annual sum of 
not less than $2.50 per mile of trunk line wire. Finally, 
all licenses were to expire 31 years after January 31, 
1 88 1, nothing whatever being stated as to what should 
become of the property of the licensee, should the Gov- 
ernment decline to renew the license. 1 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 4177 to 4180, Mr. J. S. Forbes, Chairman National Tele- 
phone Company ; Report from the Select Committee on Telephone 
and Telegraph Wires, 1885 ; q. 996, 997, 1036 and 1037, Mr. C. 
Moseley, Chairman Lancashire and Cheshire Telephonic Exchange 
Company ; and q. 366, Mr. J. B. Morgan, Director United Telephone 
Company; Report from the Select Committee on Telephones, 1898; 
q. 13 to 31, Sir Robert Hunter, Solicitor to Post Office; Hansard's 
Parliamentary Debates; May 5, 1884, Mr. Fawcett, Postmaster 
General; and April 1, 1898, p. 1673, Mr. Caldwell; The Elec- 
trician (London), April 28, 1905; Report from the Select Com- 



14 THE TELEPHONE IN GREAT BRITAIN 

The United Telephone Company, the owner of the 
telephone patents, limited its own operations to Lon- 
don. For the rest of the United Kingdom, the Com- 
pany established subsidiary companies, to whom it 
rented telephones. Each company was given the sole 
right to use the telephone in its area. In 1882, the 
Postmaster General announced that he would issue no 
more licenses, unless the licensee should agree to sell 
the Postmaster General, at a price to be fixed by arbi- 
tration, all the telephones that he should desire. The 
Postmaster General proposed to rent or sell the tele- 
phones to licensees who should compete with the sub- 
sidiary companies established by the United Telephone 
Company. The United Telephone Company refused 
to submit to this invasion of the monopoly rights guar- 
anteed to it and to every owner of a patent for a period 

Telephone of fourteen y ears h Y the patent laws 

Industry is of the United Kingdom. The result 

Paralyzed was that b the period frQm lg g 2 tQ 

1884, only eight companies out of seventy-seven com- 
panies that applied for a telephone license succeeded in 
obtaining a license. 1 The Postmaster General was 
actuated by the desire to secure competition in the tele- 
phone service. But it is clear beyond the necessity of 
argument that he was guilty of usurpation of power 

mittee on Telegraphs Bill, 1892; q. 10 to 19, Mr. J. C. Lamb, Assis- 
tant Secretary to Post Office, in charge of the Telegraph business ; 
and Hansard's Parliamentary Debates; May 22, 1884, p. 1059, Mr. 
Dwyer Gray. 

1 Hansard's Parliamentary Debates; May 22, 1884, pp. 1056 and 
986, Mr. Dwyer Gray. 



TELEPHONE LICENSES OF 1881 AND 1887 15 

when, by an administrative ruling, he sought to annul 
the patent laws of the United Kingdom so far as were 
concerned the owners of the telephone patents. 

The Government's policy of protecting the Post 
Office Telegraphs and invading the rights of the owners 
of the telephone patents practically paralyzed the tele- 
phone industry. In the spring of 1885, there were only 
„ . . , 3,800 telephone subscribers in Metro- 

Telephone politan London. In the rest of the 

Statistics United Kingdom there were about 

9,000 subscribers in about 75 cities and their outlying 
suburbs and villages. 1 

In the United States, on January i, 1885, the Ameri- 
can Bell Telephone Company was operating telephone 
exchanges in 772 cities and towns and about 300 of 
United States their ad Joining suburbs. Its total num- 
Telephone ber of subscribers was 134,847. The 

Statistics Company had established "main" ex- 

changes in 535 towns and places with a population of 
not to exceed 10,000; and "branch" exchanges in about 
120 other small places. Its subscribers in places of not 
to exceed 10,000 people, numbered 28,i45. 2 

In the United States there were, in 1880, 580 cities 
with a population of 4,000 people, and more than 4,000 

1 Report from the Select Committee on Telephones and Tele- 
graph Wires, 1885 ; q. 364, 367, 458 and 369, Managing Director 
United Telephone Company; q. 1071, Mr. R. R. Jackson, Chair- 
man National Telephone Company; q. 915, Mr. C. Moseley, Chair- 
man Lancashire and Cheshire Telephonic Exchange Company, 
Limited ; and q. 2775, Mr. W. H. Preece, Electrician to Post Office. 

2 American Bell Telephone Company ; Statistics of Exchanges, 
1885 and 1886. 



16 THE TELEPHONE IN GREAT BRITAIN 

people. The total population of those cities was 
12,936,110. In England and Wales, there were, in 
1 88 1, 771 cities with a population of 3,000 people, and 
more than 3,000 people. The total population of those 
cities was 17,285,026. 

On June 13, 1884, The Times wrote: "The action of 
the Post Office has been so directed as to throw every 
possible difficulty in the way of the development of the 
telephone and of its constant employment by the public. 
We say, advisedly, every possible difficulty, because the 
regulations under which licenses have been granted to 
the telephone companies are, in many respects, as com- 
pletely prohibitory as an absolute refusal of them. ... It 
appears that the telephones can only be used under re- 
strictions which are as absurd as they are vexatious. . . . 
The conduct of the office, although not legally dishonest, 
is, at least, morally indefensible. There can be no just 
ground for a claim to possess the telephone, by virtue 
of words introduced into an Act of Parliament before 
the telephone was thought of; and the effects of this 
claim are nearly as disastrous to the country as to the 
inventors and owners of the instruments." 1 The Times 
voiced a sentiment which made itself felt so strongly 
Restrictive m ^ e House of Commons in the fall of 

Measures 1 884 in the debate upon the Vote of 

Relaxed Supply tQ the p Qst q^ that the Gqv _ 

ernment was obliged to relax the restrictions upon the 

1 Lord Avebury : On Municipal and National Trading, p. 109. 



TELEPHONE LICENSES OF 1881 AND 1887 17 

use of the telephone. Mr. Fawcett, Postmaster General, 
announced the change of policy in these words: 
"Throughout we have been most anxious that the public 
should enjoy all the possible facilities, with regard to 
telephonic communication, which are compatible with 
due regard to the interests of the Revenue [derived from 
the State Telegraphs]. ... I at once proceed to state 
how we think that these facilities could be given, so 
that, on the one hand, the public may have these facili- 
ties with regard to telephonic communication, which 
they have a right to demand ; whilst, on the other hand, 
the Revenue [from the State Telegraphs] is properly 
protected. . . . ' n Mr. Fawcett then stated that he 
would "not for one moment" entertain the request of 
the United Telephone Company for a monopoly 
in those areas which the Company served. Therefore 
he must also reject the proposal made by the Company 
"that in their respective areas they be allowed to carry 
on their business in any manner they might think fit, 
and that, in place of the 10 per cent, royalty, the Com- 
pany would undertake to make good to the Post Office 
Department any loss which the local telegraph revenue 
might suffer from the development of telephonic com- 
munication within such district." For that purpose the 
Company had proposed to take the normal growth of 
the telegraph revenue in the past three years as the basis 
of calculation. Mr. Fawcett concluded with the an- 
nouncement of the Government's new policy, which was 

1 Hansard's Parliamentary Debates; August 7, 1884, p. 126. 
2 



18 THE TELEPHONE IN GREAT BRITAIN 

as follows : The Post Office reserved the right to com- 
pete with the United Telephone Company in any estab- 
lished area, either in its own person, or by granting 
licenses to other companies. All limitations on areas 
were to be removed, and permission to erect trunk wires 
was to be given to all licensees. Companies were to be 
permitted to open public pay stations, but they were not 
"to receive or deliver a written message at any point." . . 
"It would make, I am afraid, a serious hole in the tele- 
graph revenue if written messages were allowed to be 
sent," said Mr. Fawcett. The royalty of 10 per cent, 
on the gross receipts was retained ; and the Post Office 
continued to be under no obligation to provide way- 
leaves. Finally, all outstanding licenses were to be re- 
placed by new ones. The latter, as well as all licenses 
to be issued in the future, were to terminate on Decem- 
ber 31, 191 1, unless the Government should avail itself 
of the option to purchase the licensee's plant in 1890, 
1897 or 1904. If the Government should avail itself of 
the option to purchase at any of the aforementioned 
dates, the price should be determined by arbitration. If 
the Government should not avail itself of that option, 
then the licensee's rights would simply expire, nothing 
being said on the question of what was to become of the 
licensee's plant in 191 1. 1 

The new policy went into effect in October, 1884. At 
that time, the telephone had penetrated to about seventy- 

1 Report from the Select Committee on the Telegraphs Bill, 1892; 
q. 10 to 19, Mr. J. C. Lanb, Assistant Secretary to Post Office. 



TELEPHONE LICENSES OF 1881 AND 1887 19 

five separate towns, with their adjoining villages. By 
1892, when the Government compelled the National 
Telephone Company to sell the trunk wires erected sub- 
sequently to October, 1884, the telephone had penetrated 
to about 400 towns and cities. 1 

Before leaving this subject of the licenses of 1881 and 
1884, a word must be said upon the attitude of the 
Government toward the Post Office Telephone Ex- 
change system. As soon as the Post Office had insti- 
tuted legal proceedings against the Edi- 
Government 
opposed to son Company, it applied to the Treasury 

"rate-aided" for permission to establish telephone 

Competition . , , ., r^, 

exchange systems of its own. lhe 

Treasury consented "on the understanding that its ob- 
ject is by the establishment of a telephonic system to a 
limited extent by the Post Office to enable your depart- 
ment to negotiate with the telephone companies in a 
satisfactory manner for licenses/' On that understand- 
ing the Post Office established a number of telephone 
exchange systems. In June, 1883, however, the Post 
Office asked the Treasury for permission to engage in 
active competition with the telephone companies. The 
Treasury replied : "In reply to these [your] arguments, 
my Lords [of the Treasury] have to observe that they 
find no evidence that the extension of the business is 
necessary in order to maintain the profit on the capital 



1 Report from the Select Committee on the Telegraphs Bill, 1892; 
q. 365, Mr. J. S. Forbes, Chairman National Telephone Company. 



20 THE TELEPHONE IN GREAT BRITAIN 

already sunk in it. It is new profit, therefore, not the 
maintenance of the old, which has to be weighed against 
the general objection to the appearance of the State as 
a competitor in trade. The sound principle, in the 
opinion of my Lords, is that the State, as regards all 
functions which are not by their nature exclusively its 
own, should at most be ready to supplement, not en- 
deavor to supersede private enterprise, and that a rough, 
but not inaccurate, test of the legitimacy of its procedure 
is not to act in anticipation of possible demand. My 
Lords do not propose to push this doctrine so far as to 
exclude declarations in Parliament, the affixing of 
notices in post offices, and such like means of showing 
what business you are ready to undertake; but they 
object to anything in the nature of solicitation, and 
above all of personal solicitation. For these reasons 
they are not prepared to approve of the appointment of 
travelling clerks [canvassers]. For all these reasons, 
my Lords do not wish you to do more, in respect of 
exchanges and private wires, than to bring your offers 
[of telephone service] fairly within the knowledge of 
the public, and to wait for their demands upon you." 1 
The Treasury did not confine itself to prohibiting 
canvassing for business. It also refused to allow the 
Post Office to install a telephone exchange system 
unless the Post Office could show that the system was 
likely to be profitable, that is, to pay 3.5 per cent, in- 

1 Report from the Select Committee on Telephones, 1898; q. 
1 105 to 1 1 10, 800 and 887, Mr. J. C. Lamb, Second Secretary to 
Post Office. 



TELEPHONE LICENSES OF 1881 AND 1887 21 

terest on the investment, as well as annual sinking fund 
payments which would repay in fifteen years the capital 
invested. 1 This latter policy the Treasury enforced 
Precautionary as a precaution against the repetition 
Measures against of the parliamentary pressure and log- 
' Log-rolling' rolling which had set in immediately 
after the State had nationalized the telegraphs in 1870, 
and had undertaken to fill the gaps in the telegraph net 
which the private companies had built up. Four years 
of that pressure and log-rolling had compelled the Gov- 
ernment to refuse to build further telegraph lines of 
uncertain financial outcome, unless the inhabitants of 
the districts to be served by such lines should guarantee 
that the lines would pay interest on the capital invested, 
as well as sinking fund payments which would repay 
in seven years the capital invested, and, finally, would 
leave a margin for certain contingencies. Sir Stafford 
Northcote, Chancellor of the Exchequer, in 1875, in the 
course of an allusion to that parliamentary pressure and 
log-rolling, said that the Government could not exercise 
the discretion which the telegraph companies had ex- 
ercised, but must seek protection against unjustifiable 
demands for telegraph services in the policy of local 
guarantees. He added the significant words : "This is 
a point worthy of consideration, not so much in regard 
to the Telegraph Service itself, in which we are now 

1 Report from the Select Committee on Telephones, 1898; q. 4818 
to 4832, and 5511 to 5513, 5315, and 5065 to 5070, Mr. W. H. Preece, 
Engineer-in-Chief to Post Office ; and Hansard's Parliamentary De- 
bates ; June 21, 1906, p. 392, Mr. Sydney Buxton, Postmaster General. 



22 THE TELEPHONE IN GREAT BRITAIN 

fairly embarked, and of which we must make the best 
we can, as in reference to suggestions of acquisitions 
of other forms of property, and the conduct of other 
kinds of business, in which I hope the House will never 
be led to embark without very carefully weighing the 
results of this remarkable experiment." 1 

Upon this question of pressure exercised by Parlia- 
ment and the public, Mr. Scudamore, Assistant Secre- 
tary of the Post Office and official head of the State 
Telegraphs, had testified as follows, in 1873 : "I have 
only too lively a recollection of the pressure put on the 
Department at and for a long time after the transfer 
[of the telegraphs to the State], a pressure which I 
alone had to bear, and which has left traces on me never 
to be effaced, a pressure which no consideration would 
induce me to encounter again. At the transfer, and for 
long afterwards, nay, even up to the present time, what 
has been the public cry? Has it not been continually, 
'Give us more wires on existing lines? Give us ex- 
tensions of wires to outlying places. Bring the offices 
of transmission and delivery closer to our doors. Bind 
together not merely the villages and hamlets of the main 
land, but the little islands which fringe the northern 
coasts. Give us a more rapid news service, so that all 
parts of the United Kingdom may be simultaneously 
informed of all that it imports the Kingdom to know. 
In short, do all you can to quicken, to improve, to ex- 
tend telegraphic communication.' This has been, this is 

1 Hansard's Parliamentary Debates; April 15, 1875, p. 1025. 



TELEPHONE LICENSES OF 1881 AND 1887 23 

still the public cry. There is scarcely a Chamber of 
Commerce or a Town Council in the Kingdom that has 
not urged it again and again. There is hardly a news- 
paper, from one end of the land to the other, that has 
not in turn chided the [Post Office] Department for not 
progressing. There is hardly a Member of Parliament 
that has not supported the prayer of his constituents." 1 

Upon the same occasion, Mr. Monsell, Postmaster 
General, was asked : " . . . . Are you in a position to 
state to us that the Post Office has been beset constantly, 
I may say daily, by applications from all parts of the 
country for those extensions ?" He answered : "That 
is putting it in rather a strong way, but I know that the 
applications received have been very numerous, and the 
pressure was very great. I would rather say 'was' 
than 'is/ because we have nearly done the work now." 2 

At the time of the offering of the foregoing testi- 
mony, Mr. Scudamore, who had been given a perfectly 
free hand in reorganizing and extending the telegraph 
system purchased in 1870, had spent about $4,500,000 
more than Parliament had put at the disposal of the 
Post Office. For the purchase, reorganization and ex- 
tension of the telegraphs, Parliament, upon the advice 
of Mr. Scudamore, had appropriated $35,000,000 in 
1869, and another $5,000,000 in 1871. 3 

1 Second Report from the Committee on Public Accounts, 1873; 
Appendix No. 1, pp. 11 1 and 147. 

2 Second Report from the Committee on Public Accounts, 1873; 
q. 2001. 

8 Second Report from the Committee on Public Accounts, 1873; 
q. 2069, Mr. Lowe, Chancellor of the Exchequer ; and Appendix 
No. 1, p. 95- 



24 THE TELEPHONE IN GREAT BRITAIN 

The development of parliamentary pressure and log- 
rolling in connection with the building of telegraph 
lines had not been the only direction in which the ex- 
periment of State telegraphs had disappointed some of 
Pressure from the m0re thoughtful of the English 
Telegraph statesmen. In 1881, Lord Frederick 

Clerks Cavendish, Financial Secretary to the 

Treasury, expressed himself as follows in the House of 
Commons : "With respect to the telegraph clerks, since 
they have received the franchise, they had used it to 
apply pressure to Members of Parliament for the 
furtherance of their own objects. ... If, instead of 
the Executive being responsible [for the conduct of the 
State Telegraphs] , Members of the House were to con- 
duct the administration of the Departments, there would 
be an end of all responsibility whatever. In the same 
way, if the Treasury was not to have control over ex- 
penditure, and Members of the House were to become 
promoters of it, the system [of administering the na- 
tional finances] which had worked so admirably in the 
past would be at an end. . . . With regard to the position 
of the telegraphists in the Government service as com- 
pared with their former position under private Com- 
panies, what had taken place [since the nationalization 
of the telegraph service] would be a warning to the 
Government to be careful against unduly extending the 
sphere of their operations by entering every day upon 
some new field, and placing themselves at a disadvan- 
tage by undertaking the work of private persons." . . . 1 

1 Hansard's Parliamentary Debates; August 16, 1881, p. 141. 



TELEPHONE LICENSES OF 1881 AND 1887 25 

The foregoing expressions of disappointment with 
the every-day working of the policy of extending the 
activity of the State to the conduct of great commercial 
enterprises employing tens of thousands of persons and 
affecting the pocket-book interests of many classes of 
The State society and of innumerable localities and 

Telegraphs regions, came from respectively the 

a Warning Chancellor of the Exchequer in Mr. 

Disraeli's Ministry of 1874 to 1880, and the Financial 
Secretary of the Treasury in Mr. Gladstone's Ministry 
of 1880 to 1885. The disillusionment which those 
statements expressed was shared by more than one of 
the leaders of the two leading political parties ; and that 
disillusionment undoubtedly was a considerable factor 
in the considerations which led the Disraeli Ministry 
as well as the Gladstone Ministry to refuse to take up 
the telephone business. 

The policy of abstention from active competition 
with the telephone companies, the Treasury maintained 
until June, 1898. Of course the Treasury Letters and 
the Treasury Minute here quoted were not made known 
to the public until after the policy of abstention from 
competition had been abandoned. Nor, finally, was the 
foregoing policy in any way inconsistent with the state- 
ments made from time to time by the Government of 
the day that the Post Office, if necessary, would correct 
by means of Post Office competition any evils that 
might arise through the telephone companies abusing 



26 THE TELEPHONE IN GREAT BRITAIN 

their powers or neglecting their opportunities. Upon 
this point, Mr. J. C. Lamb, Assistant Secretary to Post 
Office, testified as follows in 1895 : "I think there is a 
wide difference between competition and the possibility 
of it. I think we have proved by actual experience that 
the possibility of competition has produced certain good 
results, and, if it were necessary, that possibility, I 
think, would produce good results again." 1 

In the years 1881 to 1898, the Post Office installed 
49 telephone systems. At the close of 1898, the New- 
castle-on-Tyne Exchange had 565 subscribers ; the 
Cardiff Exchange had 162 subscribers; two exchanges 
Moribund State had respectively 49 and 60 subscribers 
Telephone each; four exchanges had from 20 to 

Exchanges ^5 subscribers each; eight exchanges 

had from 10 to 19 subscribers each; twenty- four ex- 
changes had from 2 to 8 subscribers each; and nine 
exchanges had no subscribers. 2 

Mr. R. W. Hanbury, Financial Secretary to the 
Treasury from 1895 to 1900, and Representative in the 
Alle Hon f House of Commons of the Postmaster 
Unfair Com- General, the Duke of Norfolk, in the 
petition course of his repeated onslaughts upon 

the National Telephone Company, attributed the 
failure of the Post Office Telephone Exchanges to 

1 Report from Jhe Select Committee on the Telephone Service, 
1895 ; q. 5279- 

2 Parliamentary Paper, No. 201, 1899. 



TELEPHONE LICENSES" OF 1881 AND 1887 27 

make any headway, primarily to the alleged practice of 
the National Telephone Company of giving special and 
preferential rates in those areas in which the Company 
competed with the Post Office, and only secondarily to 
the Treasury restrictions. 1 Before the Select Com- 
mittee on Telephones, 1898, Mr. J. C. Lamb, Second 
Secretary to Post Office, and Mr. W. H. Preece, Engi- 
neer-in-Chief to Post Office, made some statements 
which upon a hasty reading might seem to support Mr. 
Hanbury's statement. But upon careful reading those 
statements leave one in doubt as to the opinions of 
Messrs. Lamb and Preece. The latter witness asserted 
that the Post Office could hold its own against the Na- 
tional Telephone Company if the Treasury would but 
give the Post Office a "free hand," that is, the power to 
employ all ordinary commercial methods and practices, 
excepting the power to show preference and favor. 2 
Moreover, the statements of Messrs. Lamb and Preece 
as to the exercise of favor and preference by the tele- 
phone companies seem to apply, not to the National 
Telephone Company, but to the companies which were 
absorbed by the National Company in the latter part of 
the decade from 1881 to 1890. No evidence seems to 
have been presented to the effect that the National 
Telephone Company, which acquired a practical mo- 



1 Hansard's Parliamentary Debates; April 1, 1898, p. 1728; and 
March 6, 1899. 

2 Report from the Select Committee on Telephones, 1898; q. 807 
to 809, Mr. J. C. Lamb; and q. 4816 and following, 5277 and follow- 
ing, and 5316 to 5319, Mr. W. H. Preece. 



28 THE TELEPHONE IN GREAT BRITAIN 

nopoly in 1890, made a practice of fighting the Post 
Office Telephone Exchanges by showing preference and 
favor, though local agents may from time to time have 
shown preference and favor without having been au- 
thorized so to do. Finally, after Mr. Hanbury had 
gained what he wanted to gain by his onslaughts upon 
the National Telephone Company, he himself admitted 
that the National Telephone Company never had made 
a practice of giving preferential rates. 1 

The Government declined to purchase the telephone 
patents, largely because of the unsatisfactory working 
of the experiment of the nationalization of the tele- 
graphs. It immediately sought to pro- 
tect its telegraph revenue by restricting 
the development of the telephone. In 1884, public 
opinion compelled the Government to relax somewhat 
its restrictive measures ; but it did not compel the Gov- 
ernment to give the telephone free scope. In the subse- 
quent years public opinion became more and more con- 
fused by the issues raised successively by the telephone 
amalgamations of 1889-90, the Duke of Marlborough, 
the Association of Municipal Corporations and Mr. R. 
W. Hanbury, Financial Secretary to the Treasury in 
1895 to 1900. The result was that the persons who 
undertook to popularize the telephone were never 
given a fair chance. The enterprise which those persons 

1 Hansard's Parliamentary Debates; June 26, 1899, p. 694, Mr. 
Hanbury and Sir James Fergusson ; compare also, March 6, 1899, 
p. 1396, Sir James Fergusson. 



TELEPHONE LICENSES OF 1881 AND 1887 29 

were ready to bring to their task is indicated in their 
willingness to invest millions of dollars in a house-top 
to house-top plant, under a charter which expired with 
the lapse of 31 years, with no provision either for its 
renewal or for the sale of the plant and established busi- 
ness. It is further indicated in the proposal of the Lan- 
cashire and Cheshire Company to install a free long- 
distance service, as well as local pay stations or the basis 
of two cents per conversation. 



CHAPTER III 

THE AMALGAMATIONS OF 1889-90 

The United Telephone Company, owner of the master patents, 
establishes subsidiary companies for the several parts of the 
United Kingdom. Those companies subsequently are consolidated 
into the National Telephone Company. The consolidation re- 
sults in the issue of $15,525,000 of securities, which represent a 
cash outlay of $9,065,000. The injection of $6,460,000 of "water" 
is not a stock market operation, so-called, but a necessary inci- 
dent in the upbuilding of a new industry. At the time of the 
consolidation the profits yielded by the telephone business were 
high; but since then they have averaged about eight per cent, 
upon the capital actually invested. The "water" injected in 1889 
to 1890 is eliminated by 1903, through the practice of expending 
upon plant undistributed net earnings. 

The United Telephone Company, which, in 1880, 
acquired the patent rights of Messrs. Bell and Edison, 
confined its operations to the so-called Metropolitan 
London telephone area. It supplied telephone instru- 
ments to a number of companies organized for the pur- 
pose of serving certain specified portions of the United 
Kingdom. In most of those companies, if not in all of 
them, the stockholders of the United Telephone Com- 
pany retained a controlling interest. 1 The leading so- 
called provincial companies were the National Tele- 

1 Report from the Select Committee on Telephone and Tele- 
graph Wires, 1885 ; q. 1040, Mr. C. Moseley, Chairman Lancashire 

30 



THE AMALGAMATIONS OF 1889-90 31 

phone Company and the Lancashire and Cheshire 
Company. The National operated in the Midlands, 
the north of England, the whole of Scotland, and the 
north of Ireland. The Lancashire and Cheshire oper- 
ated in Lancashire, Cheshire and the surrounding dis- 
tricts. After the removal, in 1884, of the prohibition 
against interurban trunk lines, the several local ex- 
changes of these three companies were very largely 
connected by means of trunk lines. It then became ap- 
parent that ultimate success in developing the telephone 
industry was to be achieved only by means of uniform- 
ity of system, similarity of method, concentration of 
administration, and complete intercommunication by 
means of trunk lines. The outcome of that convic- 
tion was the amalgamation, in May, 1889, of the three 
companies in question into the National Telephone 
Company. The latter company shortly afterward ab- 
sorbed the ten remaining smaller subsidiary companies 
which were operating in the remaining parts of the 
United Kingdom. It will be noted that the consoli- 
dated companies had not been in competition with each 
other; the consolidations of competing companies hav- 
ing been effected previous to 1889. 

The consolidations of 1889-90 were, however, not 
prompted solely by the desire to secure greater efficiency 
and economy. They were prompted in part by the 
belief that the existence of one large company ex- 

and Cheshire Telephonic Exchange Company, Ltd., and q. 364 and 
372, Mr. J. B. Morgan, Managing Director United Telephone 
Company. 



32 THE TELEPHONE IN GREAT BRITAIN 

tending over the whole United Kingdom would tend 

to discourage the formation of competing local com- 

Motives for panies when such formation should 

Consolidation become possible after the expiry of 

the telephone patents in 1890 and 1891 respectively. 1 

It was believed also that a united company would be 

able to obtain better terms from the Government than 

would a number of separate companies, should the 

Government, in 1890, exercise its right to purchase the 

properties of the telephone licensees. 2 

The fusion of the three large companies was effected 

on the basis of the market values of the respective 

companies' shares; and the ten smaller 
Forty-two per . . , , . ., 

cent of "Water" com P ames were absorbed on a similar 

basis of valuation. The shares of the 
National Telephone Company were taken at par ; those 
of the Lancashire and Cheshire Company at 131.25; 
and those of the United Telephone Company at 250. 3 
The outcome was the capitalization of the resulting 
National Telephone Company at $15,525,000; to repre- 
sent a cash expenditure of $9,065,000; in other words, 
the injection of $6,460,000 of "water." 4 

When the several telephone companies were launched, 
their credit was so poor that it was necessary to issue 

1 The Times; June 5, 1889, Mr. J. S. Forbes, Deputy Chairman 
United Telephone Company. 

2 The Times; June 5, 1889, Mr. James Brand, Chairman United 
Telephone Company. 

8 The Economist ; May 25, 1889. 

* Report from the Select Committee on the Telephone Service, 
1895 ; q. 4783 to 4789, Mr. J. S. Forbes, Chairman National Tele- 
phone Company. 



THE AMALGAMATIONS OF 1889-90 33 

their securities at a discount. The alternative would 
have been the unbusinesslike practice of issuing securi- 
ties promising an unduly high rate of interest. The 
several companies therefore had begun business with 
a capitalization in excess of the cash actually raised 
and invested in plant and patent rights. And the dif- 
ference between the face value of the securities sold, 
and the cash obtained, had represented the cost of ob- 
taining money for investment in an industry that was 
untried, and, therefore, of uncertain financial outcome. 
That cost of obtaining money had been as much and as 
necessarily a part of the cost of the resulting telephone 
plant, as had been the cost of the poles, wire, instru- 
ments and labor put into the plant. 

After experience had shown that the telephone in- 
dustry was profitable, the securities which had been 
issued at a discount rose to a premium ; and the differ- 
ence between that discount and premium was the reward 
reaped by the persons who had had the courage to 
risk their money in an untried industry, as well as the 
commercial ability to bring that industry to the stage 
of an industry "ready made." To have refused to 
recognize that increase in values, would have been to 
deny to the investors in an untried and undeveloped 
industry the reward due to them by reason of their 
courage and ability. Such denial would have been 
against the public interest, for it would have discour- 
aged the spirit of adventure, one of the most priceless 
qualities that a nation can possess. In short, the 
3 



34 THE TELEPHONE IN GREAT BRITAIN 

$6,460,000 of "water" injected into the capital of the 
National Telephone Company in 1889-90, represented 
the reward of the persons who had assumed the 
Legitimate V1S ^ inherent in every effort to develop 

Stock-watering a n invention from the stage of a me- 
chanical device of proven success in a laboratory, into 
an instrument of proven success and actual usefulness 
in the work-a-day world of industry and commerce. 
Again, it represented the reward of persons who had 
undertaken a task which the Government had declined 
to undertake, largely because experience gained under 
the experiment of the nationalization of the telegraphs 
had taught the Government that it was too weak to 
protect the national treasury against the illegitimate 
demands made by every class and section of the public 
whom the practice of public ownership had brought 
into commercial relations with the State. 1 

In April, 1890, when the foregoing amalgamations 
were completed, the National Telephone Company had 
invested in its plant an accumulated surplus of $267,- 
500, which was not represented by outstanding securi- 
ties. That surplus was increased each year; 2 and by 
June 30, 1906, it had become $io,330,ooo. 3 Early in 
1903, it had become sufficiently large to neutralize 
the "water" injected in 1889-90, namely $6,460,000. 

1 Compare H. R. Meyer : The British State Telegraphs. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; p. 236. 

3 The Electrical Review; July 27, 1906. 



THE AMALGAMATIONS OF 1889-90 35 

At the time of the amalgamation of 1889-90, and 

previous thereto, the profits made by the telephone 

companies were large. For example, in the four years, 

1886 to 1889, the United Telephone 
Earnings upon ~ > i* «j 1 1 

Cash Investment Company s dividends were respectively 

13, 13, 15 and 17.5 per cent. 1 Again, 
in the year 1889-90, the net revenue of the National 
Telephone Company available for interest, dividends, 
reserve fund and depreciation fund, was equivalent to 
14.8 per cent, upon the actual cash investment. But 
in the subsequent years the profits declined rapidly. In 
the period from 1892 to 1897, tne net revenue in ques- 
tion ranged between 7.89 per cent, and 9.18 per cent, 
upon the actual cash investment; and it averaged 8.66 
per cent. In the years 1898 to 1904, it ranged be- 
tween 7.20 per cent, and 8.08 per cent. ; and it averaged 
7.98 per cent. 2 

There were two reasons for the decline in profits after 
1890. In the first place, the monopoly which the Na- 
tional Telephone Company had held as possesser of the 
Bell and Edison patents, came to an end with the ex- 
piry of those patents in 1890 and 1891. It therefore 
became advisable to reduce the charges for telephone 
service in order to diminish the temptation to outside 
capital to go into the telephone business after the expiry 
of the patent rights. Accordingly, in January, 1891, 
a general reduction of rates outside of Metropolitan 

1 The Economist; July 20, 1899. 

3 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; p. 236 and 248 to 250. 



36 THE TELEPHONE IN GREAT BRITAIN 

London was made, from $75 and $60 a year for un- 
limited service, to $50. Those reductions involved 
the National Telephone Company in an immediate re- 
duction of revenue of $275,000 a year, 1 which sum was 
equal to 12.7 per cent, of the gross revenue of 1891. 
Of still greater effect in reducing profits, was the fact 
that the progress of invention and the restrictions 
which the Post Office and the Municipalities had placed 
upon the telephone companies, made it necessary to re- 
construct, in the period beginning with the year 1892, 
practically the whole plant that had been installed in 
the period ending with 1892, as well as considerable 
part of the plant erected in the years 1893 to 1897. 
The whole cost of replacing that plant, which in part 
was obsolete, in part had been erected on false princi- 
ples in consequence of the attitude taken by the Post 
Office and the Municipalities, the National Telephone 
Company charged to operating expenses. 2 

It must be added that the United Telephone Com- 
pany, in the last four years of its separate existence, 
when it was paying dividends which averaged 14.5 per 
cent., was giving poor service because it was adhering 
to the earth-return circuit, which began to be displaced 
in the United States, in large cities, in 1885. Had the 
United Telephone Company in 1885 begun the replace- 



1 The Times; January 20, 1899: The Case of the National Tele- 
phone Company, by a Correspondent. 

'''Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 537, 542, 1655, *759 and 1760, Mr. W. E. L. 
Gaine, General Manager National Telephone Company. 



THE AMALGAMATIONS OF 1889-90 37 

ment of its antiquated plant, its dividends doubtless 
would have been smaller in the years 1886 to 
1889, and its service would have been vastly better. 
In 1884, 1885 and 1888, the United Telephone Com- 
pany asked Parliament for rights of way in the streets ; 
and had those rights been granted, the Company would 
have begun the replacement of its earth-return circuit 
wires not later than 1887. But on each occasion the 
Government persuaded Parliament to reject without 
discussion or investigation the United Telephone Com- 
pany's application for way-leaves; although, in 1885, 
a Select Committee reported that the telephone com- 
panies ought to have such rights of way in the streets 
as had the water, gas, street railway and other public 
service companies. 

It has been necessary to dwell at some length upon 
the injection of $6,460,000 of "water" in 1889-90; the 
subsequent elimination of that "water" through the ac- 
cumulation of a reserve fund of $10,- 
330,000 invested in plant and not repre- 
sented by outstanding securities; the profits made by 
the National Telephone Company ; and the main factors 
that determined those profits. It has been necessary 
to put those facts before the reader, in order that he 
may judge the soundness of the criticism constantly 
passed upon the National Telephone Company, to wit, 
that it has kept its charges unduly high in order that 
it might pay dividends upon a capital consisting very 
largely of "water." 



38 THE TELEPHONE IN GREAT BRITAIN 

In conclusion, the writer wishes to add that in his 
opinion there can be no question as to the propriety of 
charging to operating expenses the cost of replacing 
plant made obsolete by the progress of invention; as 
well as the cost of a wrong policy forced upon a trading 
company by the desire of the State to protect its tele- 
graphs from competition, as well as by the play of 
national and municipal politics. The writer desires 
also to add that in his opinion a return of 8 per cent, 
and 9 per cent, upon capital invested in a new industry 
which is exposed not only to the risks and dangers 
inseparable from the upbuilding of new industries, but 
also to the risks and dangers gratuitously imported by 
national and municipal statesmen influenced partly by 
self-seeking and partly by ignorance of the telephone 
business and class prejudice, is by no means excessive. 



CHAPTER IV 

THE COMPULSORY SALE OF THE NATIONAL 

TELEPHONE COMPANY'S LONG 

DISTANCE SERVICE 

The growth of the National Telephone Company in the years 
1885 to 1892, in spite of the lack of power to use the streets, 
thoroughly alarmed the Government, lest the telephone should 
largely replace the telegraph for the purpose of intra-city as well 
as inter-city communication. The Post Office Telegraphs were in 
no position to meet the competition of the telephone, because of 
the mismanagement brought about by the intervention of the 
House of Commons. On the other hand, the public demand for 
a better as well as a more extensive telephone service made it 
impossible for the Government to continue to deny the National 
Telephone Company way-leaves. Under the circumstances the 
Government resolved to give the National Telephone Company 
moderate way-leaves ; and to protect the Treasury's interest in the 
State Telegraphs by compelling the National Telephone Company 
to sell its long-distance telephone plant and withdraw from the 
business of providing inter-city communication. The National 
Telephone Company under compulsion acceded to the Govern- 
ment's proposal. Dr. Cameron, M. P., Glasgow, moved that the 
Government purchase the entire business of the National Tele- 
phone Company, local as well as long-distance; but the House of 
Commons rejected the motion, after the Government had pro- 
tested that the increase in the State employees involved in Dr. 
Cameron's proposal would constitute a grave political danger. 

In 1884, when the Government relaxed somewhat 
the measures which it had taken for the purpose of 
restricting the spread of the telephone, there was tele- 

39 



40 THE TELEPHONE IN GREAT BRITAIN 

phone service in about 75 separate cities and towns of 
the United Kingdom; and there were about 12,000 
telephone users. By 1892, the National Telephone 
Company had installed service in about 400 cities and 
towns ; and had acquired 54,600 subscribers. 1 At first 
blush it would seem that satisfactory progress had been 
made in the period from 1884 to 1892 ; but as a matter 
of fact, materially greater progress would have been 
made, had the Government, in 1884, withdrawn all 
restrictions which had been imposed solely for the pur- 
pose of protecting the telegraph revenue; and had it, 
in addition, given the National Telephone Company 
adequate way-leaves. The telephone would have spread 
to smaller cities and to more remote country districts; 
above all, it would have come into much more common 
use in those cities in which it had been established. The 
restrictions and lack of way-leaves which had prevented 
that development, will be described in a subsequent 
Spread of chapter. Suffice it to state here, that 

Telephone alarms even such progress as had been made in 
Government the years lg g 4 tQ jg^ had thorough l y 

alarmed the Government. In the large cities the use 
of the telephone had begun to threaten the large traffic 
in intra-city telegraphic messages which the Post Office 
Telegraphs had built up since 1870. And in those 
districts in which the telephone trunk lines had been 
fairly well developed, the inter-city use of the telephone 

1 Report of the Select Committee on Telegraphs Bill, 1892; 
q. 365, Mr. J. S. Forbes, Chairman National Telephone Company; 
and The Electrician ; April 5, 1900. 



THE COMPULSORY SALE 41 

had made serious inroads upon the telegraph business. 
The National Telephone Company had achieved those 
successes in spite of the fact that it had been compelled 
to retain the single wire, or earth circuit system, which 
made it practically impossible to provide a satisfactory 
service in the large cities. 

In 1884, 1885 and 1888, the National Telephone 
Company had lodged Bills in Parliament which pro- 
posed to give the Company rights of way in the city 
streets and upon the country roads. With those rights 
of way the Company would have been able to offer the 
public so satisfactory a service that the use of the tele- 
phone for the purpose both of intra-city and inter-city 
communication would have received an enormous im- 
petus. What room for improvement there was, is 
indicated by the fact that in 1892 it was possible to 
converse more distinctly between London and Paris 
by means of the metallic circuit telephone system, es- 
tablished in 1 89 1, than it was possible to converse be- 
tween different houses in London by means of the 
existing single wire system. 

In 1892 the National Telephone Company for the 
fourth time lodged a Bill in Parliament, asking for 
rights of way, the Government of the day having 
vetoed the Bills of 1884, 1885 and 1888. By 1892 
the public dissatisfaction with the inadequate and ineffi- 
cient service supplied by the National Telephone Com- 
pany had become so intense that the Government did 
not dare to dismiss the National Telephone Company 



42 THE TELEPHONE IN GREAT BRITAIN 

in the fashion of 1884, 1885 and 1888. On the other 
hand, increased competition from the telephone was 
even more unwelcome to the Post Office in 1892 than 
it had been in 1884, 1885 and 1888. The increases in 
the salaries and wages of the telegraph employees 
granted in 1880 and in 1891, largely under pressure 
exerted upon the House of Commons by the postal em- 
ployees' unions, had greatly increased the cost of con- 
ducting the telegraph business. Again, the reduction, 
in 1885, of the telegraph tariff, from 24 cents for 20 
words, to 12 cents for 12 words, which had been 
forced upon the Government of the day, by the House 
of Commons under the leadership of Dr. Cameron, 1 
M. P. for Glasgow, had seriously weakened the Post 
Office Telegraphs for the task of meeting the competi- 
tion from the telephone. The charge of 12 cents for 
12 words barely covered the cost of the long-distance 
messages. On the other hand, the telephone was tak- 
ing from the Post Office the highly profitable intra- 
city traffic as well as the comparatively highly profitable 
short distance inter-city traffic, leaving to it the com- 
paratively unprofitable long-distance inter-city traffic. 2 

Under the circumstances just outlined, the Govern- 

1 Hansard's Parliamentary Debates; March 29, 1883, p. 995. 

2 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 32 to 51, 274 and 275, Mr. J. C. Lamb, Assistant Secretary to 
Post Office ; and Report from the Select Committee on the Tele- 
phone Service, 1895 ; q. 68 to 167, 5182 to 5185, 5265 to 5290, Mr. J. 
C. Lamb, Assistant Secretary to Post Office ; and Report from the 
Select Committee on Telephones, 1898; q. 8131, Mr. John Gavey, 
Second Assistant Engineer-in-Chief to Post Office. 



THE COMPULSORY SALE 43 

ment resolved to ask Parliament to confer certain 
limited rights of way on the National Telephone Com- 
pany, in order that the Company might 
Motive of so- f J . .1,1. 

called Purchase improve its service both as to quality 

of Long Distance a nd as to extent. On the other hand, 
the Government proposed to protect, 
not the Post Office Telegraphs directly, but the State 
Treasury, by compelling the National Telephone Com- 
pany to sell its trunk lines to the Post Office. In other 
words, the Government proposed to appropriate the 
earnings from the inter-city telephone business, by way 
of compensating itself for the passing of a large part 
of the more remunerative telegraph business from the 
Post Office Telegraphs to the long-distance telephone. 
The Government called the proposed transaction a 
purchase, because it proposed to pay the National Tele- 
phone Company what the trunk lines had cost the Com- 
pany. The National Telephone Company, on the 
other hand, to the last, remained an unwilling party to 
the transaction. 1 Voluntarily it would not have parted 
with its trunk lines to any one; for the possession of 
the trunk lines practically placed it beyond the possi- 
bility of competition. At that time upward of 60 per 
cent, of the telephone subscribers in some of the large 
provincial cities made daily use of the long-distance 

1 Report from the Select Committee on the Telephone Service, 
1895; q. 231, 234 and 361, Mr. J. C. Lamb, Assistant Secretary to 
Post Office ; and Report from the Select Committee on Telephones, 
1898; q. 21 12, Sir James Fergusson, Postmaster General from Sep- 
tember, 1 89 1, to August, 1892; and q. 610 to 616, and 891 to 899, 
Mr. J. C. Lamb, Second Secretary to Post Office. 



44 THE TELEPHONE IN GREAT BRITAIN 

telephone; 1 and it was practically impossible to get 
customers enough to warrant the establishment of a 
local exchange, unless one could promise intending 
subscribers a long-distance service. But the Govern- 
ment held the whip hand. In the first place, practically 
the whole of the National Telephone Company's trunk 
lines had been erected on the permanent way of the 
railway companies, subject to six months' notice of re- 
moval from the Post Office, which, under the monop- 
oly acquired in 1869, had the sole right to authorize 
the railway companies to permit anyone to erect poles 
and wires upon their property. 2 The Post Office could 
have given the Company six months' notice, and could 
then have established its own trunk line service; par- 
ticularly since the New Telephone Company 3 was ready 
to cooperate with the Post Office by establishing local 
exchanges which would have provided business for the 
Post Office trunk lines. In the second place, the Post 
Office could have seriously embarrassed the National 



1 Report from the Select Committee on the Telegraphs Bill, 1892; 
Mr. J. S. Forbes, Chairman National Telephone Company, p. 22 ; 
and q. 126, Mr. J. C. Lamb, Assistant Secretary to Post Office; and 
Report from the Select Committee on Telephones, 1898; q. 7801, 
Mr. J. C. Lamb ; and q. 7467, Mr. W. E. L. Gaine, General Manager 
National Telephone Company. 

2 The National Telephone Company paid the Post Office an 
annual rental of $5.00 per mile of double wire for the waiving of 
the Postmaster General's monopoly rights. In addition, it paid 
the railway companies annual rentals. 

3 This Company had been practically dormant since its corpo- 
ration in 1885. Down to 1891, it had been hampered by the fact 
that it could not obtain telephones ; and after that year it had been 
unable to proceed because it could not promise long-distance service 
when it canvassed for subscribers to its proposed local exchanges. 



THE COMPULSORY SALE 45 

Telephone Company by refusing that Company any 
further way-leaves across, under or along the railways 
within the large cities. The railways intersect the 
large cities in so many directions, that it is impossible 
to establish an adequate telephone service without power 
to pass along, over and under them. 1 Finally, the 
National Telephone Company was in so many ways 
dependent upon the good-will of the Government, that 
mere prudence forbade its refusing to grant any per- 
emptory demand made by the Government. 2 

On March 22, 1892, the Postmaster General, Sir 
James Fergusson, announced to the House of Com- 
mons the Government's intention to purchase the tele- 
phone trunk lines. After admitting that the terms of 
the Company's license had checked the spread of the 
telephone, he said : "I have given earnest attention to 
this subject with a view to providing a system which 
would facilitate instead of retard the development of 
the industry while sufficiently guarding the Post Office 
monopoly, which, though an ugly word, expresses a 
great interest of the country acquired at a great cost. 
The two objects are not incompatible .... That there 
is a real danger of the valuable public property — the 
telegraph system — being injured by the extension of 

1 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 160, 161 and 182 to 188, Mr. J. C. Lamb, Assistant Secretary to 
Post Office ; and Report from the Select Committee on Telephones, 
1898; q. 382 to 386, Sir Robert Hunter, Solicitor to Post Office. 

2 The Times; July 15, 1892, Mr. J. S. Forbes, Chairman National 
Telephone Company. 



46 THE TELEPHONE IN GREAT BRITAIN 

this telephone system, is proved by the fact that wher- 
ever the telephone system has been principally devel- 
oped, there the growth of the telegraph revenue has 
been checked. The telephone system has been more 
considerably developed in Lancashire and Yorkshire 
than elsewhere in this country, and there the growth of 
the telegraph revenue has been most checked .... We 
are prepared to facilitate legislation giving certain 
moderate powers for the construction of telegraphs 
[telephone wires] by the licensees. These concessions, 
if granted without corresponding provisions for the 
protection of the public revenue, would be very danger- 
ous. For if the telephone companies were in communi- 
cation with all the large towns, and sent messages all 
over the country, undoubtedly the system would to a 
large extent supersede the use of the telegraphs, and, 
consequently, largely diminish the telegraph revenue. 
Therefore, it is an essential feature in any scheme, if 
carried out, that the Government should have possession 
of the trunk wires." A week later the Postmaster 
General added : "The main reason why the Government 
desires to get the trunk lines into their hands is to see 
that whatever revenue arises from the telephones, a 
portion shall go to the public .... The safeguard of 
the taxpayer will be our possession of the trunk wires, 
and the fact that a proportion of any profits arising 
from the increased transactions of the companies will 
accrue to the Post Office, and go to the direct benefit of 
the Revenue." 1 

1 Hansard's Parliamentary Debates; March 22, 1892, p. 1*436; and 
March 29, pp. 187 and 191. 



THE COMPULSORY SALE 47 

On March 29, Dr. Cameron, Member of Parliament 
for Glasgow, moved that "the Post Office system of 
granting licenses to private telephone companies having 
Government resulted in the restriction of telephonic 

opposed to communication in this country and a 

Nationalization costly and j ne ffi c j ent ser vice, this House 

is of opinion that, alike in the interest of the postal 
telegraphs and the telephone service, the telephone 
monopoly possessed by the Post Office should be worked 
directly and in connection with the Post Office Tele- 
graph Department." In the course of his argument, 
Dr. Cameron stated that the success achieved by the 
recently established long-distance telephone between 
London and Paris had increased the Government's 
alarm at the competition of the telephone with the 
telegraph, especially if the National Telephone Com- 
pany should get such way-leave powers as would en- 
able it to adopt the double-wire, or metallic circuit 
system. 

Dr. Cameron's Motion for the nationalization of the 
telephone was lost after the Postmaster General, Sir 
James Fergusson, and the Chancellor of the Exchequer, 
Mr. G. J. Goschen, had opposed it on behalf of the 
Government. Sir James Fergusson said : " . . . . the" 
House will hesitate before it authorizes the Government 

Civil Service to increase ^gely the duties of the 

a Source of Post Office, or the number of people in 

an £ er its employment. I think it undesirable 

that there should be a direct employment by the State 



48 THE TELEPHONE IN GREAT BRITAIN 

of a great number of employees, because it is not un- 
known that complaints have been made in the House 
with regard to [i. e., on behalf of] public servants which 
would never have been heard of had those persons been 
servants of private companies, who are able to go into 
the market and obtain their servants at the rate of 
wages which is regulated by the law of supply and 
demand. Under such a system the employees obtain 
the best price for their labor, and the companies get 
the work done as cheaply as they possibly can. But 
a different element altogether is introduced when the 
State becomes the employer, and the amount of salaries 
to be paid for a given quantity of work is no longer 
fixed by the market price. In these circumstances, I 
submit that the Government has acted prudently in 
endeavoring to restrict the number of persons in their 
employment .... and in resolving 'not to acquire the 
[entire] business of the telephone companies' .... An- 
other point presents itself. It is quite evident that 
there would be calls for an extension of the telephone 
in districts where it would not pay. It is much more 
difficult for the Government to resist such calls for 
extension than it would be for private companies to do 
so. . . .It is for these reasons that Her Majesty's Gov- 
ernment has not thought it prudent to undertake this 
great additional service, and has decided to leave the 
working of it 1 to private companies." 

5 That is, the local telephone service as distinguished from the 
long-distance service. 



THE COMPULSORY SALE 49 

The Chancellor of the Exchequer, Mr. G. J. Goschen, 
said :".... I am not prepared to accept to an indefinite 
degree the growing disposition of the public to place 
new duties on the State. The Postmaster General is, 
I think, at present at the head of an army of 100,000 
persons, and the relations which he has to establish and 
maintain between the heads of Departments and this 
mass of employees is of growing importance, and we 
must not look forward with any light heart to the num- 
ber of Government servants increasing in such vast 
numbers as they do now from year to year .... I do 
not think it wise in the interests of the country gen- 
erally that the Government should be continually 

extending its functions I think I may fairly say 

that my late Right Honorable Friend, Mr. W. H. 
Smith, who had as much experience as any man of 
Public Departments and of private business, took the 
strongest view on this matter, and was entirely a party 
to the decision which the Cabinet took on this matter, 
namely that they would not undertake to buy up the 
whole of the telephone business of the country." 

On May 23, 1892, the Government laid before Par- 
The State liament the Treasury Minute upon the 

acquires the Proposals for the Development of the 

Telephone™ Telephone System in the United King- 

Service dom. That document once more em* 

phasized the necessity of protecting the Public Revenue. 
It began: "It is the object oi these proposals, while 

4 



50 THE TELEPHONE IN GREAT BRITAIN 

preserving the property in the telegraphs, which has 
been paid for by the nation, to secure that expansion 
of the telephone system which is called for by public 
opinion and the necessities of commerce. It is im- 
possible to continue the present system under which 
the telegraph revenue is suffering, while, on the other 
hand, the extension of telephones is checked in a 
manner which cannot be permanently maintained. . . . 
Unless the trunk wires are in the hands of the State, 
a monopoly injurious to the public interest would 
inevitably ensue, to the advantage of the company 
which first laid down such trunk lines.". . . . 

At the same time that the Government laid the fore- 
going Treasury Minute before Parliament, it brought 
in a Bill to authorize the Government to raise $5,000,- 
000 for the purpose of purchasing, and subsequently 
extending, the National Telephone Company's trunk 
wires. The Select Committee to which the Bill was 
referred reported in favor of the proposed purchase, 
and recommended that the terms of the sale be left to 
negotiation between the Companies and the Govern- 
ment, but that the Government should not grant the 
request of the National Telephone Company for an 
extension of its license in part consideration of the 
transfer of the trunk wires. The Bill became law. 
"After a great deal of difficulty/' 1 the National Tele- 
phone Company and the Government agreed upon 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 87, Mr. J. C. Lamb, Assistant Secretary to Post Office. 



THE COMPULSORY SALE 51 

terms; and in August, 1892, the heads of the agree- 
ment were initialled by the Government and the Na- 
tional Telephone Company. It took three years of 
further negotiation to settle the details of the transfer 
in accordance with the heads of the Agreement; and 
in March, 1896, the trunk wires were transferred to 
the Post Office. The cash consideration was $2,295,- 
570, for 2,651 route-miles, or 29,000 miles of wire. 
That sum represented the Post Office Department's 
estimate of the original cost of the trunk lines, includ- 
ing an allowance of 10 per cent, for "supervision and 
headquarters" charges. 1 The National Telephone Com- 
pany had stated that the trunk lines had cost 
$2,450,000 ; but it had not kept its books in such a way 
as to be able to show conclusively the aggregate sum 
spent. 2 

The National Telephone Company not only parted 
with its trunk wires, but also relinquished its right to 

_, _ establish at its pleasure the limits of its 

The State to 

demarcate the several local telephone areas. It ceded 

Local Telephone to the Government the right to divide 

A 

the United Kingdom into local tele- 
phone areas to which the several local telephone ex- 
changes must confine themselves. The principles upon 

1 Report from the Select Committee on Telephones, 1898; q. 395 
to 397, and 62, Sir Robert Hunter, Solicitor to Post Office; and 
Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 1810, 1878 and 1892, Mr. John Gavey, Engi- 
neer-in-Chief to Post Office. 

2 Report from the Select Committee on the Telephone Service, 
1895 ; q. 226 and 229, Mr. J. C. Lamb, Assistant Secretary to Post 
Office. 



52 THE TELEPHONE IN GREAT BRITAIN 

which the Government agreed to demarcate the areas 
were : "industrial areas of wide extent to be recognized 
as telephone areas in cases where there are no consid- 
erable towns forming centers of business; neighboring 
towns intimately connected in their business relations 
to be included in one area; small towns or villages in 
any one of which it would be hopeless to establish a 
local exchange system unless there were some cheap 
means of communicating with each other, to be grouped 
in one area." 1 It proved so difficult for the Post Office 
Department and the National Telephone Company to 
agree upon the application of these principles to the 
individual cases, that the negotiations were not con- 
cluded until early in 1895. 2 

The National Telephone Company desired to make 
the local areas very large, in order to protect itself 
against possible municipal competition, it having been 
established by experience in the field of street railway 
operation and electric lighting, that it is extremely diffi- 
cult to get adjoining local authorities to act together 
for the purpose of establishing and operating extensive 
plants. In a letter written in February, 1893, to Mr. 
J. C. Lamb, Assistant Secretary to Post Office, Mr. 
Gaine, General Manager National Telephone Company, 
stated the company's position. He asked "that certain 
facts be taken into consideration in dealing with the 

1 Report from the Select Committee on Telephones, 1898 ; q. 695, 
Mr. J. C. Lamb, Second Secretary to Post Office. 

7 Hansard's Parliamentary Debates; March i, 1895, p. 217, Mr. 
Arnold Morley, Postmaster General, 1892 to 1895. 



THE COMPULSORY SALE 53 

demarcation of the telephone areas, namely, a spring- 
ing up in certain large towns of a desire for the munici- 
palization of the telephones. With the trunk wires in 
the hands of the company, the company would not fear 
municipal competition, but without that it would object 
to municipal competition as unfair — because rate-aided, 
and because municipalities might deny to companies 
facilities for putting wires underground which the Cor- 
poration [municipality] would grant to itself. ... It is 
true that the construction of large areas such as I have 
indicated, would trench upon the Post Office revenue, 1 
but that might be met by providing for an adequate 
payment by the company to the Post Office." Mr. 
Lamb replied that the Post Office could not accede to 
the request of the National Telephone Company, partly 
because the Post Office was unwilling to commit itself 
on the question of municipal competition, though at the 
time no municipality had applied for a telephone license ; 
partly because the Post Office wished to avoid the ex- 
pense which would arise from the necessity of building 
trunk wires to more than one of the National Tele- 
phone Company's exchanges in any single area. Mr. 
Lamb cited the case of Wolverhampton, a city of about 
90,000 inhabitants, which, at the time, formed a part 
of the National Telephone Company's Birmingham 
telephone area. He said that many members of Parlia- 
ment had urged the Postmaster General, Sir James 



1 By diminishing the number of trunk wires, and thus reducing 
the trunk wire conversation fees. 



54 THE TELEPHONE IN GREAT BRITAIN 

Fergusson, to make Wolverhampton a separate area, 
in order that the public, when desirous of using the 
Post Office trunk wires, might not be compelled to use 
the National Telephone Company's wires for the pur- 
pose of reaching the Post Office trunk wires at Birming- 
ham, the center of the area. 1 In accordance with those 
requests the Post Office broke the Birmingham area up 
into four separate areas. It pursued a similar course 
at Newcastle and North and South Shields. All of 
those areas had been established previous to 1892. At 
the present time the largest telephone areas in England 
are said to be not nearly so big as are some of the local 
areas on the Continent, especially in the great manufac- 
turing and mining districts along the Rhine. 2 That is 
a matter of importance, first, because the Post Office 
makes charges for the use of the trunk wires; and 
secondly, because the Post Office has failed to increase 
the trunk wire facilities in correspondence with the 
growth of business. 

In passing, it should be added, that after the Post 
Office had rejected the Company's request that the 
local areas be made so large as to preclude the future 
establishment of municipal telephone plants, the Com- 
pany accepted that refusal without reserve and acted 
"in a very straight-forward manner" throughout the 

1 Report from the Select Committee on Telephones, 1898; q. 8596 
to 8598, and 8880. 

2 Report from the Select Committee on Telephones, 1898; testi- 
mony of Mr. Lamb, Second Secretary to Post Office, q. 8596 to 8598, 
8877 to 8880, 8641 and 8642, 2911, 3002, 1971, 2996, 751 to 754, and 
3131 to 3139; and Sir James Fergusson, q. 2102. 



THE COMPULSORY SALE 55 

negotiations concerning the demarcation of areas. 1 On 
the other hand, the Post Office throughout those nego- 
tiations was governed exclusively by the twofold de- 
sire to protect the Post Office trunk revenue and to 
serve the public convenience. It gave no thought to 
the question of the effect of the demarcation of areas 
on the possibility of the future establishment of munici- 
pal telephone plants. It gave to that question no 
thought one way or the other, since "it was not the 
policy at the time to entertain applications [for licenses] 
from municipalities." 2 

In addition to submitting to the foregoing curtail- 
ments of rights, the National Telephone Company was 
obliged to assume the obligation to buy all of the out- 
standing telephone licenses which it had not yet ac- 
quired, and to turn them over to the Post Office, free 
of cost. The reason for putting that obligation upon 
the National Telephone Company was that the out- 
standing licenses conferred the power to install ex- 
changes anywhere, and to connect those exchanges by 
means of trunk wires. To the Isle of Thanet Tele- 
phone Company, which had no plant, but owned a 
license, the National Telephone Company was obliged 
to pay $ i oo, 5 oo. 3 

* Hansard's Parliamentary Debates; March i, 1895, p. 217, Mr. 
Arnold Morley, Postmaster General from 1892 to 1895. 

2 Report from the Select Committee on Telephones, 1898; q. 2981, 
8641, 8877 and 8880, Mr. J. C. Lamb, who, as Assistant Secretary 
to Post Office, conducted the negotiations on behalf of the Govern- 
ment. 

9 Report from the Select Committee on Telephones, 1898; q. 11 39, 
Mr. J. C. Lamb, Second Secretary to Post Office; and q. 5816, 



56 THE TELEPHONE IN GREAT BRITAIN 

Finally, the Post Office reserved the right to estab- 
lish Post Office telephone plants anywhere; as well as 

„ .. t the right to authorize anywhere new 

Reservation of p ■> 

Right to author- companies to compete with the National 
ize Competition Telephone Company, provided such 
companies could obtain the consent of the local authori- 
ties concerned. That is, the Government reserved 
that right so far as the letter of the law was concerned. 
But Mr. G. J. Goschen, Chancellor of the Exchequer, 
as representative of the Government, stated in the 
House of Commons that the Government policy was 
not to authorize competition with the National Tele- 
phone Company so long as that Company should not 
abuse its powers or neglect its duties as a public service 
corporation. 1 

In consideration of the concessions which the Na- 
tional Telephone Company made to the Government, 
the latter body induced Parliament to authorize the 
Postmaster General, at his pleasure, to confer upon the 
National Telephone Company such rights of way, or 
way-leaves, as the Postmaster General himself possessed 
under the Telegraph Acts of 1863 and 1878, as well 
The Municipal as under section 2, clause 11, of the 
Vet ° Telegraphs Act, 1892, — provided that 

in each individual case the consent of the local author- 
ity concerned be obtained. Since there was no appeal 

5833, 6282, 6271 and 6277, Mr. J. S. Forbes, Chairman National 
Telephone Company ; and Report from the Select Committee on the 
Telephone Service, 1895 ; q. 4192 to 4195, Mr. J. S. Forbes. 
1 Hansard's Parliamentary Debates; March 29, 1892, p. 195. 



THE COMPULSORY SALE 57 

from the refusal of a local authority to give its consent, 
the National Telephone Company in some important 
cities never succeeded in obtaining any rights of way, 
beyond private rights of way from house-top to house- 
top. In many other cities and towns the National 
Telephone Company obtained rights of way in the 
streets only after great delay and upon onerous terms. 

Before the Select Committee on Telephones, 1898, 
Mr. W. E. L. Gaine, General Manager National Tele- 
phone Company, testified that when the Government 
opened the negotiations which led to the Company's 
acceptance of the Agreement of 1892, the Government 
promised the Company adequate way-leaves. But 
that when the Bill was laid before Parliament, it con- 
tained the provision giving the local authorities an 
absolute veto upon the exercise of any way-leave pow- 
ers. 1 This change of policy on the part of the Gov- 
ernment was due to the influence of the powerful Asso- 
ciation of Municipal Corporations, 2 before whom has 
bowed more than one British Ministry. 

The Government made several additional and minor 
concessions to the National Telephone Company. It 
removed, in part, the prohibition against a messenger 
Minor Con- being sent out from a public telephone 

cessions ca n office for the purpose of calling a 

non-subscriber to the station to answer a telephone call. 

1 Report from the Select Committee on Telephones, 1898; q. 7164. 

2 Report from the Select Committee on the Telephone Service, 
1895 ; q. 1420 and 1422, Mr. H. E. Clare, Deputy Town Clerk of 
Liverpool and Representative of the Association of Municipal Cor- 
porations. 



58 THE TELEPHONE IN GREAT BRITAIN 

This relaxation of the restrictions upon the use of the 
public pay stations applied only to messages sent be- 
tween stations in the same telephone area. The Post 
Office continued the prohibition against a person, say, 
in London, calling to a public pay station, say, in Man- 
chester, a non-subscriber to the telephone in Manches- 
ter. That prohibition was retained in order to protect 
the Post Office Telegraphs from competition from the 
telephone. 1 

The Post Office also withdrew the prohibition upon 
the establishment of public pay stations by the National 
Telephone Company in the shops of the tradesmen who 
acted as sub-postmasters and conducted small branch 
Post Offices. It also agreed to consider the question of 
allowing the National Telephone Company to establish 
public pay stations in the head-district Post Offices and 
the main branch Post Offices. 2 The prohibition, in 
the past, of the establishment of such pay stations had 
been based upon the desire to protect that part of the 
telegraph business which consisted of the sending of 
intra-city telegrams. 



1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 4560 to 4570, Mr. J. S. Forbes, Chairman National Tele- 
phone Company; and q. 101, Mr. J. C. Lamb, Assistant Secretary to 
Post Office ; Report from the Select Committee on Telegraphs Bill, 
1892, q. 56, Mr. J. C. Lamb ; Report from Joint Committee on Elec- 
tric Powers (Protective Clauses), 1893; q. 1345: Treasury Minute, 
May 23, 1892; and Report from Select Committee on Telephones, 
1898; q. 6042, Mr. W. E. L. Gaine, General Manager National 
Telephone Company; q. 621 to 672, Mr. J. C. Lamb; and q. 1616 to 
1 62 1, Mr. A. R. Bennett. 

2 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 73, Mr. J. C. Lamb, Assistant Secretary to Post Office. 



THE COMPULSORY SALE 59 

Finally, the Government established the following 
scale of charges for a three minute conversation over 
the trunk lines. For distances not exceeding 25 miles, 

Scale of Long 6 cents; for distances between 25 and 
Distance Tele- 50 miles inclusive, 12 cents; for dis- 
phone Charges tanceg between 5 q and ?5 miles inclu- 
sive, 18 cents; for distances between 75 and 100 miles 
inclusive, 24 cents; and for each additional 40 miles, 
or fraction thereof, an additional charge of 12 cents. 
The National Telephone Company's charges had been 
identical with these for distances up to 100 miles; but 
for distances beyond 100 miles, they had increased at 
the rate of 12 cents additional for each additional 25 
miles, or fraction thereof. 1 

The Telegraphs Bill, 1892, authorizing tlie Post 
Office to make the foregoing arrangements with the 
National Telephone Company, was referred to a Select 
Committee in June, 1892. The Committee approved 
the proposed arrangements, with the proviso that the 
Government should not grant the Company's request 
for an extension of its license in consideration of the 
valuable concessions made to the Government. There- 
upon the Government and the Company reached an 
Agreement ; initialled the heads of the Agreement, and 
laid the resulting document on the Table of the House. 



1 Report from the Select Committee on Telephones, 1898; q. 621, 
Mr. J. C. Lamb, Second Secretary to Post Office; and Report from 
the Select Committee on the Telephone Service, 1895 ; q. 235, Mr. 
J. C. Lamb. 



60 THE TELEPHONE IN GREAT BRITAIN 

The Agreement, as finally drawn, was laid before Par- 
liament in 1894, and was accepted by the House of 
Commons in 1895, after a debate upon the Motion of 
Mr. J. W. Benn, that the Agreement should not be 
confirmed. 

The Post Office purchased the trunk wires on March 
25, 1896. Since it had neither staff nor exchange 
buildings, it appealed to the Company for aid; and the 
Company continued to operate the trunk wires until it 
was convenient for the Post Office to assume the opera- 
tion. In addition, the Company from time to time 
supplied the Post Office with skilled workmen and 
operators, as well as permitted the Post Office to send 
operators into the Company's switch rooms to be trained 
to their work. 1 The harmonious relations between the 
Company and the Post Office indicated by the fore- 
going facts, never were disturbed or broken, so far as 
were concerned the National Telephone Company and 
the permanent officers of the Post Office, whose busi- 
ness it was to know to a nicety how the National Tele- 
phone Company was carrying out its duties as a public 
service corporation. When Mr. Hanbury, a Conserva- 
tive statesman of great personal force, made himself 
the champion of the cause of municipal telephones, and 
cultivated the habit of speaking of the National Tele- 
phone Company as a public enemy, if not as a criminal, 
he remained without the sympathy and the support of 



1 The Times; January 23, 1899: The Case of the National Tele- 
phone Company, by a Correspondent. 






THE COMPULSORY SALE 61 

a single one of the prominent Post Office officials who 
were in a position to know how the Company was dis- 
charging its public obligations. 

When the telephone began to make serious inroads 
upon the national telegraphs, the Government should 
have taken one of two courses. Either 
[ary it should have reformed the adminis- 

tration of the national telegraphs; or it should have 
purchased the entire property of the National Tele- 
phone Company, under its power to purchase on arbi- 
tration terms in 1890 or 1897. The reform of the 
administration of the national telegraphs was politi- 
cally inexpedient. It would have aroused the opposi- 
tion of the civil servants, of the newspaper press, and 
of that section of the public that was benefited by the 
unbusinesslike practice of a uniform charge for tele- 
grams irrespective of the distance that telegrams were 
sent. 1 On the other hand, the Government was un- 
willing to purchase the entire property of the National 
Telephone Company because of the grave political dan- 
ger inherent in the increase in the number of the civil 
servants which that purchase would have entailed. 
Under the circumstances the Government resolved to 
compel the National Telephone Company to part with 
its long-distance telephone service, not on arbitration 
terms, but at cost of construction. It also resolved to 
compel the Company to give up the right to demarcate 

Compare H. R. Meyer: The British State Telegraphs. 



62 THE TELEPHONE IN GREAT BRITAIN 

the areas of its local exchanges. The Company ac- 
cepted the Government's policy only under compulsion ; 
for the right to demarcate the local exchange areas and 
to connect them by means of long-distance telephone 
lines, practically exempted the Company from the possi- 
bility of competition. The Government somewhat 
allayed the apprehensions of the Company, by announc- 
ing, through the Chancellor of the Exchequer, that 
while it reserved full power to authorize any kind of 
competition, it was not its intention to authorize com- 
petition so long as the Company should not become 
guilty of neglect or violation of duty as a public serv- 
ice corporation. The Government which made that 
announcement represented the Conservative Party. 
Seven years later, in 1899, the Conservative Party, in 
obedience to the exigencies of politics, authorized every 
local authority to engage in competition with the 
National Telephone Company, though the latter had 
been guilty of no neglect or violation of duty. 



CHAPTER V 

THE POST OFFICE FAILS TO PROVIDE AN 
ADEQUATE LONG-DISTANCE SERVICE 

The fear of "log-rolling" induces the Government to adopt the 
policy of making no extensions of the long distance telephone 
service, unless no financial risk is involved, or, the districts to be 
served shall guarantee "a specific revenue per year, fixed with 
reference to the estimated cost of working and maintaining a 
given mileage of trunk line wire." Evidence in detail that the 
Government has failed to provide adequate long-distance tele- 
phone facilities. Thus far no Government elected directly or in- 
directly by universal manhood suffrage has been able to husband 
its resources so as to be able properly to finance such industrial 
ventures as it may have undertaken. In that respect the ex- 
perience of Great Britain has been a repetition of the experience 
of France, Italy, Australia and Prussia. 

One of the strongest objections urged by the Na- 
tional Telephone Company, in 1892, against the 
Government's proposal to purchase the telephone long- 
distance trunk lines, was, that there would be serious 
danger that the Government would prove unwilling or 
unable to provide for the proper extension of the trunk 
lines. 1 The Company added that in the erection of 
trunk lines they had found one of the most potent stimu- 
lants for their local exchanges, many people joining the 

1 Report from the Select Committee on Telegraphs Bill, 1892; 
p. 22, Mr. J. S. Forbes, Chairman National Telephone Company. 

63 



64 THE TELEPHONE IN GREAT BRITAIN 

local exchange for the express purpose of speaking to 

other towns. By way of illustration, they cited the 

fact that in Manchester, Liverpool and 
Importance of 
an Adequate otner lar g e provincial cities about 65 

Long-distance per cent, of the subscribers used the 
trunk lines daily. 1 In July, 1898, two 
years after the Post Office had taken over the trunk 
lines, Mr. J. C. Lamb, Second Secretary to Post Office, 
fully corroborated the foregoing testimony. He stated 
that "experience was proving that in the smaller towns 
local exchange services could not be established unless at 
the same time a trunk service was provided." ... At 
the same time Mr. W. E. L. Gaine, General Manager 
National Telephone Company, stated that in country 
towns the Company's usual rate of subscription was 
$40 a year, if access could be given to a trunk line ; if 
not, then $30 or $32. 50. 2 

The apprehensions of the National Telephone Com- 
pany were amply justified by subsequent events. As 
soon as the Post Office had taken over the trunk lines, 
Government's the Tre asury laid down the rule that 
Fear of the Post Office must not proceed on a 

Log-rolling commercial basis in extending the 

trunk lines, that is, it must not use its discretion and 
make experimental or tentative efforts for the purpose 

1 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 365 and 369, Mr. J. S. Forbes, Chairman National Telephone 
Company, and q. 126, Mr. J. C. Lamb, Assistant Secretary to Post 
Office. 

2 Report from the Select Committee on Telephones, 1898, q. 7801, 
Mr. J. C. Lamb ; and q. 7467* Mr. Gaine. 



ADEQUATE SERVICE NOT PROVIDED 65 

of ascertaining where extensions would promise to be 
financially successful, and where they would be likely to 
prove unremunerative. The Treasury compelled the 
Post Office to adopt the policy of refusing to make any 
extensions of doubtful prospect, unless private persons, 
or the local authority interested, should guarantee "a 
specific revenue per year, fixed with reference to the 
estimated cost of working and maintaining a given 
mileage of trunk line wire." 1 The log-rolling de- 
veloped in the years 1870 to 1873, when the Post Office 
had extended the telegraph lines "on commercial con- 
siderations," had been such that the Treasury was un- 
willing to run the risk of a repetition of that experience 
in the field of State telephone trunk lines. 2 The reader 
will recall the fact that in 1892, Sir James Fergusson, 
Postmaster General, stated that the difficulty which a 
political body would experience in resisting the demands 
for unprofitable extensions of the telephone service was 
an important reason why the State should not take over 
the entire telephone service. 3 

In 1898 the National Telephone Company was guar- 
anteeing the Post Office an aggregate annual revenue 
of $19,825 on 793 miles of trunk wire to various 

1 Report from the Select Committee on Telephones, 1898; q. 5065 
to 5074, Mr. W. H. Preece, Engineer-in-Chief to Post Office ; and 
q. 684, Mr. J. C. Lamb, Second Secretary to Post Office ; Report 
from the Select Committee on Telephone Service, 1895 ; q. 70 to 73, 
Mr. J. C. Lamb, Assistant Secretary to Post Office ; and Hansard's 
Parliamentary Debates; June 21, 1906, p. 392, Mr. Sydney Buxton, 
Postmaster General. 

2 H. R. Meyer: The British State Telegraphs. 

3 Hansard's Parliamentary Debates; March 29, 1892. 

5 



66 THE TELEPHONE IN GREAT BRITAIN 

places in which the Company was operating local ex- 
changes. 1 The conservatism of the Treasury is illus- 
trated in the fact that the Post Office was obliged to 
obtain a guarantee from the National Telephone Com- 
pany before it was permitted to build to Southend, a 
town of 25,000 inhabitants. 2 Under guarantees from 
the National Telephone Company, the trunk line 
system was extended: in 1 900-1 901, to thirteen places, 
five of which ranged in population from 5,000 to 
16,000; in 1901-02, to nine places, seven of which 
ranged from 4,000 to 11,000; and in 1902-03, to six 
places, five of which ranged from 8,000 to i9,ooo. 3 

Let us examine somewhat in detail the evidence upon 
this question of the failure of the Government to supply 
adequate trunk line facilities. Though the Post Office 
did not take over the trunk lines until March, 1896, it 

assumed the responsibilitv for their 
Government . . 

fails to supply extension immediately after the heads 

Adequate G f Agreement had been initialled in 

Facilities August, 1892. As early as 1895, Mr. 

J. C. Lamb, Assistant Secretary to Post Office, ad- 
mitted that the development of the telephone business 
was being hampered by the lack of trunk lines. In that 
same year, Mr. H. E. Clare, representing the Associa- 
tion of Municipal Corporations, stated that the use of 
the telephone between towns would be "very much 

1 Report from the Select Committee on Telephones, 1898; q. 6065, 
Mr. J. S. Forbes, Chairman National Telephone Company. 

-Hansard's Parliamentary Debates; August 3, 1899, p. 1247, 
Lord Harris, a Director of the National Telephone Company. 

3 Garcke: Manual of Electrical Undertaking, 1904. 



ADEQUATE SERVICE NOT PROVIDED 67 

greater with better trunk facilities." 1 In 1898, Mr. 
Clare again appeared before a Select Committee, say- 
ing: "The great importance of the telephone is its 
commercial importance. To a business man $10 a year 
is no consideration, he wants better service, more trunk 
lines, rather than cheaper service. Between Liverpool 
and London we want several more trunk wires. The 
Stock Exchange itself would employ several wires be- 
tween London and Liverpool if it could get them." 
Before the same Committee, Mr. Gaine, General Mana- 
ger of the National Telephone Company, said: "My 
constant application to the Post Office is for more 
trunk wires [duplications as well as extensions] ; and 
to prove to them that the business over the existing 
wires is in excess of what they can carry." Sir James 
Fergusson, who had been Postmaster General in 1891 
to 1892, and, in 1896, had become a Director of the 
National Company, testified: "Simply from the point 
of view of giving telephonic facilities, I am inclined to 
think that a commercial company is more sympathetic 
than the Post Office." . . . Mr. Lamb, Second Secre- 
tary to Post Office, added: "The Treasury has in 
some cases made considerable difficulty in authorizing 
us to expend money on the construction of trunk 
wires." 2 In August, 1899, in the House of Lords, 

1 Report from the Select Committee on the Telephone Service, 
1895; q. 90 and 154, Mr. J. C. Lamb; and q. 1222 to 1230, Mr. H. 
E. Clare, Deputy Town Clerk of Liverpool. Compare also : Report 
from the Select Committee on Telephones, 1898; q. 1976, Mr. J. C. 
Lamb. 

2 Report from the Select Committee on Telephones, 1898; q. 4325, 
4326, 7109, 2219 and 1976. 



68 THE TELEPHONE IN GREAT BRITAIN 

Lord Harris, 1 a Director of the National Telephone 
Company, said : "I can assure the noble Duke [the 
Postmaster General] that if he would appoint a com- 
mittee of impartial persons who use the telephone to 
report on the trunk service, that committee would re- 
port that the service was insufficient and inefficient." 2 . . 
In May, 1900, Mr. W. E. L. Gaine, General Manager 
National Telephone Company, said : "I have, week by 
week, brought to me reports of all the district managers 
and superintendents with regard to the trunk delays 
which are taking place throughout the United Kingdom, 
and I say, without hesitation, that a very grave indict- 
ment can be framed against the Post Office for the 
manner in which the trunk service of this country is 
carried out. ... I find that throughout the United 
Kingdom delays are daily experienced of from half an 
hour to two hours in duration, and I say this, that no 
trunk service is worthy of the name which requires a 
man to wait upon an average, more than five minutes in 
order to have his message put through." Mr. Gaine 
added that the Government would have to spend 
$20,000,000 to make the trunk service adequate. 3 The 
actual investment at the time was $7,500,000; and as 
late as March 31, 1906, it was only $i4,488,ooo. 4 In 
November, 1900, the National Telephone Company 

1 Under-Secretary for India, 1885-86; Under-Secretary of War, 
1886 to 1889; Governor of Bombay, 1890 to 1895; Lord-in- Waiting 
to Queen Victoria, 1895 to 1900. 

2 Hansard's Parliamentary Debates; August 3, 1899, p. 1246. 

3 The Electrician; May 11, 1900. 

* Report of the Postmaster General on the Post Office, 1906. 

(Continued on page 69.) 



ADEQUATE SERVICE NOT PROVIDED 69 

notified its subscribers of "an intimation from the Post 
Office that a minimum of 20 minutes must always 
elapse before any reply can be expected by a subscriber 
as to whether he can get through to the trunk town on 
the trunk service with which he wishes to communicate. 
The delay is attributed to an insufficiency of trunk 
wires and a paucity of operators." 1 

In 1 90 1, the Annual Meeting of the Association of 
Chambers of Commerce resolved : "That to meet the 
pressing requirements of trade, a more efficient tele- 
graph and telephone service between the commercial 
and manufacturing centers of the United Kingdom is 
imperatively necessary: and that, in certain districts 
the usefulness of the trunk telephone service is much 
impaired by its inadequacy to meet the demands made 
upon it, and that, if increased facilities were provided, 
and the delays at present experienced in obtaining 
communication avoided, the volume of telephone busi- 
ness would be immensely increased." 2 

In May, 1904, Lord Stanley, Postmaster General, 
said : "During the last two years it has been necessary 
to refuse to provide long telephone lines between 
London and places such as Manchester, Liverpool and 

Telephone Trunk Wires 

TV/fi t Capital 

Circuits yj'ire Expenditure Calls Revenue 

1897-98 877 55,721 5,928,000 5,888,000 670,300 

1905-06 i,755 128,063 14,488,000 17,974,039 2,145,575 

1 The Electrician; November 16, 1900. 

2 The Electrician ; February 22 and April 5, 1901. 



70 THE TELEPHONE IN GREAT BRITAIN 

Glasgow, for private use, owing to the difficulty of 
finding space on existing routes even for the new wires 
required for the public service. Estimates of the cost 
of constructing new routes for additional wires have 
been prepared, and I am considering whether it will be 
possible to supply long-distance private telephone lines 
to all applicants for them." 1 

In November, 1906, Mr. Stewart Jones, representing 
the Post Office Department, said to the complaining 
merchants of Newcastle that the Post Office had just 
spent $1,750,000 in building telephone trunk lines, and 
that it was engaged in spending a further sum of 
$750,000. "Newcastle had got its share of that, but 
he was perfectly aware that the trunk lines in [to] 
Newcastle were inadequate in certain cases. But it was 
very difficult, in such a rapidly growing service, to keep 
the supply up to the demand. . . . He knew that the 
trunk lines were in some cases inadequate." 2 

The inconvenience resulting to the public from the 
State's purchase of the telephone trunk lines, has not 
been confined to inconvenience resulting from lack of 
trunk line facilities. Before a Select Committee of 1905, 
Mr. H. Babington Smith, Permanent Secretary to the 
Post Office since 1903, testified that the break of con- 
tinuity of control resulting from the separate operation 
of the local telephone systems and the trunk lines made 
it extremely difficult, and at times impossible, to allo- 

1 Hansard's Parliamentary Debates; May 18, 1904; p. 165. 

2 The Electrician ; November 16, 1906. 



ADEQUATE SERVICE NOT PROVIDED 71 

cate the responsibility for delays in the use of the trunk 
lines. His testimony was endorsed by Mr. John Gavey, 
since 1902 Engineer-in-Chief to the Post Office. 1 

The failure of the Government to provide adequate 
trunk line facilities is not due exclusively to the Treas- 
ury's unwillingness to build lines for which the financial 
outlook is in any way doubtful. It is due in part to the 
inability of the British Government properly to hus- 
band its resources ; to practice economy where prudence 

, „ would counsel economy, and to practice 

Popular Gov- \ 

emments cannot liberal expenditure where business con- 

Husband their siderations would urge it. The British 
Government each year wastes a number 
of millions of dollars in paying more than the market 
rate of wages and salaries to the huge army of postal 
and telegraph employees, who are redundant in number 
because they have secured recognition of the demand 
that once a man has landed himself on the State's pay- 
roll, he has practically a free-hold title to employment 
for life, irrespective of his fitness, and irrespective of 
the ups and downs in the volume of the State's postal 
and telegraph business; who refuse to submit to the 
enforcement of the rigorous standards of discipline 
to which must submit all persons not in the public serv- 
ice ; who insist upon promotion being made largely in 
accordance with seniority rather than efficiency. The 
Government wastes annually a number of millions of 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 185, 186 and 413. 



72 THE TELEPHONE IN GREAT BRITAIN 

dollars by carrying at an average of 4 cents for 100 
words the telegraphic correspondence of the newspaper 
press: and at unprofitable rates the telegrams sent by 
the public at large between distant points or to and 
from the rural districts. In other words, in Great 
Britain, as elsewhere, government is carried on to a 
considerable extent by means of log-rolling and the 
bribery of constituencies out of the public purse. Those 
practices consume so much money that no Government 
has as yet been able to follow them and at the same time 
find the money required for the proper conduct of such 
commercial ventures as it may have undertaken. By 
the time the British Government has paid the annual 
bill of bribing the newspaper press, the civil servants, 
and the persons who send telegrams between distant 
points, or to and from the rural regions, it has exhausted 
its resources. Therefore it is obliged to practice a 
niggardly economy in its expenditure upon the tele- 
phone trunk lines, a purely commercial venture. 

In this respect the experience of Great Britain has 
been a repetition of the experience of every country with 
a legislature elected by manhood suffrage that has 
branched out upon industrial ventures. In France, in 

Great Britain's the P eriod fr0m l8 ? 8 to l88 5> log-roll- 
Experience is ing and the bribing of classes wrecked 
Typical the e ff orts f t he State to build up a 

national system of State railways. In Italy, in the 
period from 1878 to 1885, the same practices wrecked 
the experiment of State railways. In the principal 



ADEQUATE SERVICE NOT PROVIDED 73 

Australian Colonies, Victoria and New South Wales, 
the same practices have resulted in burdens upon the 
taxpayers and the producers which are so severe that 
the development of the Colonies has been arrested. In 
Prussia, whose government is not democratic, but is an 
enlightened despotism in the guise of a constitutional 
monarchy, the practices of log-rolling and of bribing 
constituencies have been avoided so far as the expendi- 
ture of the public funds is concerned. And yet, the 
Prussian Government has been far from successful in 
financing its great industrial venture, the State railways. 
It has made surplus earnings derived from the State 
railways the keystone of the national budget, so that it 
would be necessary practically to double the direct tax- 
ation, were the railway surplus to disappear. The re- 
sult has been that the Prussian Government time and 
again has used so large a part of the railway surplus 
for defraying the current expenses of the State, that it 
has been unable to spend upon the railways themselves 
the enormous sums demanded by the growth of trade, 
industry and population. 1 In short/so far, no nation 
has succeeded in properly financing a great industrial 
undertaking with the success that has characterized the 
operations of the great captains of industry of the 
United States, Great Britain and Germany. The whole 
nature of the great game of politics is such as to in- 
capacitate for the conduct of great industrial ventures 
the persons engaged in the conduct of that game.) 

1 Compare H. R. Meyer : Government Regulation of Railway 
Rates, Chapter III. 



CHAPTER VI 

THE REFUSAL OF WAY-LEAVES 

The telephone licenses of 1881 and 1884 merely waived the 
Postmaster General's monopoly rights; they conferred no power 
to erect poles in the streets, or to lay wires underground; so 
that, in cities and towns, the telephone wires had to be strung 
from house-top to house-top. As late as 1898, no less than 
120,000 miles of wire, out of a total of 143,000 miles of wire, 
were so strung. The system of house-top wires rendered it 
impossible to provide a telephone service satisfactory in quality 
or adequate in extent; and it delayed for years the replacement 
of the earth-return circuit by the metallic circuit. The National 
Telephone Company in 1884, 1885, 1888, 1892, 1893 and 1899 
asked Parliament for statutory power to use the streets, but 
the Postmaster General invariably refused to permit the Com- 
pany's Bills to proceed, though Parliamentary Select Committees 
in 1885 and 1893 had urged strongly that the telephone com- 
panies be given adequate powers of way-leave. Down to 1892, 
the Postmaster General, representing the Government of the day, 
was influenced solely by the desire to protect the State Tele- 
graphs by hampering the telephone. In the latter year, the 
Government became willing to give the National Telephone 
Company certain moderate powers of way-leave ; but it had to 
bow to the will of the Association of Municipal Corporations, 
and give the local authorities the power to veto the exercise 
of any powers of way-leave that the Postmaster General at any 
time might confer upon the National Telephone Company. The 
local authorities demanded the power of veto, not in order that 
they might regulate the time and manner of opening the streets, 
but in order that they might exact payment for the use of the 
streets, as well as prescribe the charges which the National Tele- 
phone Company should make to its subscribers. The Association 
of Municipal Corporations had demanded that Parliament itself 

74 



THE REFUSAL OF WAY-LEAVES 75 

fix those charges, as well as prescribe the maximum dividends 
which the Company might pay; but the Government had rejected 
that demand, lest Parliament should prescribe unremunerative 
rates. The Government had an interest in the telephone charges 
being kept on a remunerative basis, for it contemplated taking 
over the entire telephone business on December 31, 1911. The 
Government also received each year 10 per cent, of the National 
Telephone Company's gross receipts by way of royalty. Man- 
chester, in 1894, was the first city to give the National Telephone 
Company permission to use the streets ; and as late as September, 
1897, only fifty-nine cities in the United Kingdom had followed 
Manchester's example. 

The telephone licenses issued in 1881 and 1884 
merely enabled the telephone companies "to convey 
messages for payment, without infringing the exclusive 
right of the Postmaster General to convey such mes- 
sages j" 1 they conferred upon the companies no powers 
of way-leave. 2 On the other hand, unless a company 
had obtained from Parliament statutory way-leave 
powers, no local authority had the lawful right to allow 
such a company to break up the streets for the purpose 
of laying wires under the ground. 3 The local authori- 
ties could give companies or persons power to place 

Nature of the P 0Sts and wireS alon £ P ublic thorou g h - 
Telephone fares; but for practical purposes that 

Licenses power availed little, since, without the 

consent of the occupier, no pole may be erected within 

1 Hansard's Parliamentary Debates; August 12, 1881, p. 1712, 
and July 8, p. 362, Sir Henry James, Attorney General. 

a Report from the Select Committee on 7 elephones, 1898; q. 239 
to 241, Sir Robert Hunter, Solicitor to Post Office. 

3 Report from the Select Committee on Telephones, 1898; q. 239 
to 241, Sir Robert Hunter, Solicitor to Post Office, cites The Queen 
versus The United Kingdom Telegraph Company, 2 F. & F. 73 ; 
6 L. T. (N. S.) 378. 



76 THE TELEPHONE IN GREAT BRITAIN 

30 feet of a building. 1 Practically, therefore, under 
the licenses of 1881 and 1884, in cities and towns, 
telephone wires had to be carried from point to point 
by means of attachments to houses, or by means of poles 
erected upon private property. Wires could be carried 
in that way even without the consent of the local au- 
thorities, the Court of First Instance as well as the Court 
of Appeal having held, in Wads-worth District Board 
of Works versus The United Telephone Company? 
that the road authority had no veto upon the erection 
of a wire across the road, provided the wire was sus- 
pended from supports which were not upon the road, 
and crossed the road at such a height as to be above 
the area of the ordinary use of the road, and provided 
that it did not constitute a nuisance by being a probable 
source of danger or damage. 3 

Under the licenses of 1881 and 1884, the telephone 
companies depended all but exclusively upon private 

rights of way obtained from the owners 
Eighty-four , . " r . . 

per cent of and 0CCU P iers of private property. As 

the Telephone late as 1 898, Mr. W. E. L. Gaine, 

Wires exist on General Manager National Telephone 
b utterance 

Company, testified as follows : I think 

we have in round numbers 143,000 miles of wire in 

1 Hansard's Parliamentary Debates; July 8, 1881, p. 362, Sir 
Henry James, Attorney-General ; and Report of Committee on Tele- 
phone and Telegraph Wires, 1885 ; q. 4 et passim, Sir Robert 
Hunter, Solicitor to Post Office. 

2 *3 Queen's Bench Division, p. 904. 

3 Report of Committee on Telephone and Telegraph Wires, 
1885 ; q. 1 et passim, Sir Robert Hunter, Solicitor to Post 
Office. 



THE REFUSAL OF WAY-LEAVES 77 

this country, thereof I dare venture to say 120,000 
miles are absolutely on sufferance, i.e., on short notice 
[of removal]. The balance, 23,000 miles, has been put 
underground within the last two years by arrangement 
with local authorities." 1 

In order to obtain private way-leaves, the National 
Telephone Company inserted the following clause in all 
contracts with its subscribers. "The subscriber will 
grant the company free of charge every facility in his 
power for the erection, examination, maintenance, and 
removal of poles, wires, etc., for running his own wire, 
and also such wires of other subscribers to the com- 
pany's system, whether exchange or private, as the 
company may from time to time require, and will per- 
mit the company and its servants, at all reasonable 
times, to have free access to the particular premises 
herein referred to, and to all other premises under the 
subscriber's control for all or any of the purposes afore- 
said." . . . This clause covered the erection of "only 
a moderate number of wires;" when there was in- 
volved the right to erect a large number of wires, re- 
quiring the erection of a pole or poles upon the house- 
top or upon the land adjoining the house, the company 
made special bargains. 2 All of these contracts were 
terminable on short notice from the subscriber, usually 
six months' notice. The protection of the company lay 

1 Report from the Select Committee on Telephones, 1898; q. 
7570 and 7572. 

2 Report from the Select Committee on Telephones, 1898; q. 59^3 
and 6673, Mr. J. S. Forbes, Chairman National Telephone Company. 



78 THE TELEPHONE IN GREAT BRITAIN 

in the fact that if the subscriber terminated the contract, 
he lost the use of the telephone. In 1898, Mr. J. S. 
Forbes, Chairman National Telephone Company, testi- 
fied that in Metropolitan London his Company was pay- 
ing for private way-leaves, on an average $7 per 
subscriber per year, the average subscription charge per 
telephone being $71.44. He added that the Post Office 
royalty of 10 per cent, of the gross receipts was $6 per 
subscriber; and that his Company would "knock $15 
off its subscription charges," if the Government would 
give it way-leave powers and remove the royalty. 1 

The lack of way-leave powers also compelled the 
Company frequently to follow circuitous routes, and to 
multiply the number of exchanges. The multiplication 
of exchanges, in turn, not only caused increased ex- 
penditure, but also augumented the chances of delay 

r . , w and error in connecting subscribers 

Lack of Way- t f % 

leaves causes w h° wished to converse with each other. 

Waste and i n the year 1885, the Company was 

obliged to operate in Metropolitan 
London, for the benefit of less than 5,000 subscribers, 
no less than 18 central exchanges. At that time the 
Company was unable to reach Covent Garden, Middle 
and Inner Temple [the offices of the barristers], St. 
Giles, Battersea, Bayswater and East Greenwich. 2 In 
1893, Mr. J. S. Forbes, Chairman National Telephone 



1 Report from the Select Committee on Telephones, 1898; q. 6570, 
6551 and 6640. 

2 Report of Select Committtee on Telephone and Telegraph Wires, 
1885 ; q. 373 to 388, 499, 505 and 580, Mr. J. B. Morgan, Manag- 
ing Director United Telephone Company. 



THE REFUSAL OF WAY-LEAVES 79 

Company, testified that the multiplicity of exchanges 
necessitated by the necessity of going around estates 
whose owners would not give way-leaves, increased the 
delays and errors in connecting subscribers, and ac- 
counted in part for the unsatisfactory service in Metro- 
politan London. 1 In 1898, Mr. W. E. L. Gaine, Gen- 
eral Manager National Telephone Company, testified 
that if the Company had adequate way-leaves, it would 
be operating in the City of London [area one square 
mile], not four exchanges, but one exchange. The 
Company never had opened a new exchange near an 
established one for the purpose of relieving pressure, 
but always because of the way-leave difficulty. He 
added: "... there are several hundreds of people 
who have signed contracts in [Metropolitan] London 
that (whether we will or not, no question of expense) 
we are absolutely and physically unable to connect, 
owing to the attitude of the local authorities." 2 

Mr. Fortescue Flannery, M. P., laid before the Select 
Committee of 1898 his grievance, which was, that the 
National Telephone Company had kept him waiting 
over three years after making a contract 3 to give him a 
telephone in his house, which was within about a mile of 
the Company's Streatham exchange. It would have cost 
about $150 to run the wire ; but the Company could not 

1 Report from Joint Committee on Electric Powers (Protective 
Clauses), 1893; q. 1376 and 1380. 

2 Report from the Select Committee on Telephones 1898; q. 7408, 
7413 and 7303. 

3 All contracts contain the provision that they are subject to 
the Company being able to obtain and maintain all proper way-leaves. 



80 THE TELEPHONE IN GREAT BRITAIN 

get the necessary way-leaves. The Company finally 
connected Mr. Flannery with its Sydenham exchange, 
distant nearly four miles from the subscriber's house. 
Since it would Have cost upward of $500 to run a single 
wire for Mr. Flannery to the Sydenham exchange, the 
Company waited until it had obtained a sufficient num- 
ber of subscribers to warrant the erecting of wires nearly 
four miles long to the Sydenham exchange, the opera- 
tion involving the putting up of "costly ornamental 
poles" along the public road of Croydon. 1 

Finally, the lack of way-leave powers delayed for 
years the introduction of the so-called metallic circuit, 
or twin-wire system, which alone gives a satisfactory 
service in large cities. That system was introduced in 

Introduction of New York Cit y in l88 ?> or thereabout. 2 
Metallic Circuit Before the Select Committee of 1893, 
Delayed Mr D Sinclair, Engineer-in-Chief to 

the National Telephone Company, explained why it 
was extremely difficult, in the absence of way-leave 
powers, to replace the single-wire system with the twin- 
wire system. He stated that many householders who 
had given permission to erect on the roof-tops standards 
carrying single wires, would not permit the erection of 
the new standards required for the double wires. An- 
other difficulty was the impossibility of estimating the 



1 Report from Select Committee on Telephones, 1898; q. 7268 
to 7270, Mr. W. E. L. Gaine ; and q. 7220 to 7265, Mr. Fortescue 
Flannery, M. P. 

2 Glasgow Telephone Inquiry, 1897; q. 9451, Mr. H. L. Webb, 
Assistant General Manager New York Telephone Company. 



THE REFUSAL OF WAY-LEAVES 81 

cost of the conversion to twin wires, since it was impos- 
sible to estimate what it would cost to get the consents 
of the householders to the replacement of the existing 
attachments and standards by stronger ones. 1 The most 
serious difficulty was the unwillingness of the National 
Telephone Company to spend millions of dollars in 
converting its overhead single wires into overhead 
twin wires, knowing that very shortly the great bulk 
of the overhead wires would have to be put under the 
ground. The Company, after some three or four years' 
futile effort to get underground way-leaves in Metro- 
politan London, in the five or six years ending with 
1897 spent $1,500,000 in converting a part of its 
Metropolitan London system into the twin-wire system. 
It then was confronted with the probability of having 
to spend another $1,500,000 in the course of the next 
twelve months in taking those wires down and putting 
them under the ground. 2 There was an obvious limit 
to that kind of thing. As a matter of self-preservation 
the Company might do it in Metropolitan London, 
where certain statesmen first denied the Company way- 
leaves and then roundly denounced the Company for 
its inadequate and inefficient service; but it could not 
do it everywhere; not that the other large cities had 
not their share of statesmen patterned on the Metro- 
politan London model, but not all cities had so much 

1 Report from Joint Committee on Electric Powers (Protective 
Clauses), 1893 ; q. 941 and 1025 to 1027. 

2 Glasgow Telephone Inquiry, 1897; q. 7431 and 7601, Mr. W. E. 
L. Gaine, General Manager National Telephone Company. 

6 



82 THE TELEPHONE IN GREAT BRITAIN 

influence with Parliament as had Metropolitan London. 
Manchester, in 1894, was the first city to give the 
National Telephone Company permission to put its 
wires under the street. There it cost upward of 
$400,000 to replace the overhead single wire by the 
underground twin wire. 1 In September, 1897, only 
sixty cities in the entire United Kingdom had given 
the National Telephone Company underground way- 
leaves. 2 Not until 1898-99, were such way-leaves' 
given on any considerable scale. In the meantime, the 
Company not only was prevented from introducing the 
twin-wire circuit; but it also was compelled to go on 
erecting overhead wires, knowing that practically every 
one of those wires ultimately would have to be taken 
down at practically a total loss of the capital invested 
in them. 

The National Telephone Company lodged in Parlia- 
ment Bills asking for way-leaves, in the years 1884, 
1885, 1888, 1892 and 1893 ; but the Governments of the 
day refused to allow any of those Bills to proceed, 3 so 
that the merits of none of them were discussed in the 
House of Commons. The Governments of the day re- 
fused to allow the Bills lodged by the National Tele- 
phone Company to proceed, though the Select Com- 

1 Glasgow Telephone Inquiry, 1897; q. 7422, Mr. W. E. L. Gaine, 
General Manager National Telephone Company. 

2 Glasgow Telephone Inquiry, 1897; q. 4189, 4327 and 4329. 
8 Report from the Select Committee on Telephones, 1898, q. 8814. 

Mr. J. S. Forbes, Chairman National Telephone Company ; and 
q. 254 and 6909, Sir Robert Hunter, Solicitor to Post Office. 



THE REFUSAL OF WAY-LEAVES' 83 

mittee on Telephone and Telegraph Wires, 1885, 1 had 
recommended that the telephone companies "should 
have the same powers with regard to the running of 
their wires as the Postmaster General; subject, how- 
ever, to the proviso that the wires of the Company 
should not be permitted to interfere with those re- 
quired for the general public telegraphic service by the 
The Govern- Postmaster General." The Committee 
ment refuses also had recommended a considerable 
Way-leaves enlargement of the Powers of the Post- 

master General and his licensees, the telephone com- 
panies. It had recommended "especially" the repeal 
of "the provision requiring the Postmaster General to 
obtain the consent of the occupier of every dwelling- 
house within 30 feet of a pole." The Committee had 
concluded its Report with the words : "Your Com- 
mittee believe that such regulations as they have recom- 
mended will be abundantly sufficient to protect the 
public from inconvenience and danger, however wide 
may be the extension of the telephonic system. At the 
same time they believe that nothing which they have 
recommended will impede the natural development of 

1 The Government of the day seems to have accepted the appoint- 
ment of this committee only as a necessary evil, as it were. Before 
the Committee Mr. Robert Hunter, Solicitor to Post Office, testified 
as follows (q. 37) : "I would preface what I have to state .... 
by saying that the Postmaster General was not intending to apply 
to Parliament for any alteration of the law. The whole of this 
inquiry has been caused by the state of the law with respect to 
telephone companies, and the conflict of opinion between them and 
the local authorities. The position of the Post Office is, that we 
do not wish to ask for any alteration of the law, but, if there is to 
be an alteration of the law, then there are certain things which we 
think it is desirable should be done." .... 



84 THE TELEPHONE IN GREAT BRITAIN 

an invention the great and increasing utility of which 
they fully recognize." 1 

In 1885 the Postmaster General had the power to 
lay wires under the streets in cities. Against the re- 
fusal of the local authority to give its consent, he had 
appeals, first to a stipendiary magistrate or to a county 
court judge, and then to the Railway and Canal Com- 
missioners. The recommendation of the Committee of 
1885 na d included that power and those rights of 
appeal. But in 1885 the art of transmitting electrical 
energy by wire had not reached such a state of perfec- 
tion as to make it commercially feasible to lay telephone 
wires of any length under the ground; 2 and there- 
fore the Committee had recommended "that the erec- 
tion of overhead wires should be continued, subject to 
proper regulation and control." It had been of opinion 
that it would be inadvisable to compel the companies 
to put their wires under the ground. 

The first Parliamentary Committee that considered 
the question of telephone wires after it had become com- 
mercially feasible to lay such wires under the ground, 
reported, in 1893, "that it is desirable in every way 
to facilitate the use of complete insulated metallic cir- 
cuits for telephones, and for this end they recommend 



1 Report from the Select Committee on Telephone and Telegraph 
Wires, 1885. 

2 Report from the Select Committee on Telephone and Telegraph 
Wires, 1885 ; q. 312, 212 and 258, Mr. Edward Graves, Enpineer- 
in-Chief to Post Office. 



THE REFUSAL OF WAY-LEAVES' 85 

that statutory powers be granted enabling telephone 
undertakers to lay their wires underground." 1 

The reason for the Government's persistent refusal 
to let the telephone companies have independent statu- 
tory way-leave powers, was the fear that such powers 
would make the telephone companies too formidable 
competitors of the Post Office Telegraphs. That reason 
was specifically given in March, 1892, by the Post- 
master General, Sir James Fergusson. Upon that oc- 
casion, Sir James Fergusson, acting on behalf of the 
Government, defeated the Motion for the Second Read- 
ing of the New Telephone Company's Bill for way- 
The Govern- leave powers. He said : "The Bill now 
ment fears the before the House is one which in itself 
Telephone j s moc ierate in character. It really seeks 

to obtain for the New Telephone Company statutory 
powers similar to those provided for the Post Office by 
the Act of 1863, except in one particular. I do not 
know that the powers asked for would be found ex- 
cessive if it were desired by Parliament to place a 
private telephone company in the possession of separate 
statutory powers. But those have never hitherto been 
given in telephonic business. That business is in a very 
different position to gas, electric lighting and water 
undertakings, because none of these trench upon or 
touch the prerogatives of the Crown. It has been de- 

1 Report from the Joint Committee of the House of Lords and 
the House of Commons on Electric Powers (Protective Clauses), 
1893. 



86 THE TELEPHONE IN GREAT BRITAIN 

cided by a High Court of Justice that telephones are 
telegraphs, and therefore a monopoly of the Post Office, 
and accordingly no separate power has ever been con- 
ferred upon Telephone Companies, but they have acted 
under license from the Postmaster General. ... In 
view of what we believe to be the general opinion, 
and in accordance with the constant policy of the Post 
Office, it will be my duty, on behalf of Her Majesty's 
Government, to oppose the Second Reading of this 
Bill, and a fortiori the Bill promoted by the National 
Telephone Company . . . which asks powers much 
wider than were ever asked by the Post Office. ... It 
is extraordinary how local authorities and private in- 
dividuals can interrupt the making of most moderate 
extensions [of the telephone] for months. I do not 
think I need go further into the matter just now, but I 
do not think the House will be prepared to establish 
private companies in so strong a position in opposition 
to Government telegraphs as would be created by this 
Bill."* 

Tn 1892, when the Government began to negotiate 
with the National Telephone Company for the purchase 
of the Company's trunk lines, the Government held 
out the prospect of more adequate way-leave powers. 
It promised that the Postmaster General, if possible, 
should obtain from Parliament the powers that the 



1 Hansard's Parliamentary Debates; March 22, 1892, p. 1435; 
compare also Report from the Select Committee on Telephones, 
1898; q. 254 and 6909, Sir Robert Hunter, Solicitor to Post Office. 



THE REFUSAL OF WAY-LEAVES' 87 

Select Committee of 1885 had recommended Parlia- 
ment to confer upon the Postmaster 
The Government ~ , , , . ,. _ . , 

yields to the General and his licensees. It promised 

Association of also to ask Parliament to give the Post- 

Munkipal Cor- master General authority to delegate to 
porations '.■ '. 

his licensees the exercise of his statu- 
tory way-leave powers. 1 It still remained unwilling, 
however, that the National Telephone Company should 
receive way-leave powers directly from Parliament. 
But when the Government had felt the pulse of the 
House of Commons, it concluded not to ask the House 
to confer upon the Postmaster General the powers 
which the Select Committee of 1885 had recommended 
should be conferred not only upon the Postmaster 
Geneal, but also upon his licensees. 2 It concluded also, 
to give the local authorities an absolute veto upon the 
exercise by the National Telephone Company of any 
way-leave powers that the Postmaster General might 
delegate to the Company. Before the Select Commit- 
tee on the Telephone Service, 1895, Mr. H. E. Clare, 
Deputy-Town Clerk of Liverpool, and Representative 
of the Association of Municipal Corporations, testified 
that the absolute veto had been given the local author- 
ities in 1892 upon the request of the Association of 
Municipal Corporations. He said: "We objected en- 
tirely to the principle of any powers being conferred on 

1 Report from the Select Committee on Telephones, 1898; q. 7164 
and 7478, Mr. W. E. L. Gaine, General Manager National Tele- 
phone Company. 

2 Report from the Select Committee on Telephones, 1898; q, 6965, 
Sir Robert Hunter, Solicitor to Post Office. 



88 THE TELEPHONE IN GREAT BRITAIN 

the National Telephone Company excepting by an Act 
of Parliament, which, at the same time, settled the re- 
strictions" [that is, fixed the maximum price to be 
charged to subscribers, as well as the maximum divi- 
dend to be paid by the Company] . Mr. Clare added : 
"We said: 'Well, we do not like it [the Bill of 1892] ; 
at the same time, if you will give us the absolute veto to 
stop the exercise of those powers we will not offer any 
further difficulties.' m Mr. John Harrison, Town 
Clerk of Leeds, who had been sent to represent, with 
Mr. Clare, the Association of Municipal Corporations, 
at the same time testified that the Association in ques- 
tion did not demand the veto power for the local auhori- 
ties in order that those authorities might be able to 
regulate the time and manner of breaking up the streets 

Why Power for the W m g of underground wires, 

of Veto was but in order that the local authorities 

Demanded might be able to exact payments for the 

use of the streets as well as prescribe terms governing 
the subscription charges to be made by the National 
Telephone Company. 2 

The National Telephone Company, in 1892, asked 
for the right of appeal to the Railway and Canal Com- 
missioners, in case a local authority should withhold 
its consent. But that request was denied upon the pro- 
test of the Association of Municipal Corporations, 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 1420 and 1422. 

2 Report from the Select Committee on the Telephone Service, 
1895; q. 1496 to 1509, 1572 and 1579. 



THE REFUSAL OF WAY-LEAVES' 89 

though the Post Office Department itself supported 
the position taken by the National Telephone Company. 1 
Under the Act of 1892 the local authorities have 
an absolute veto, and they may make any conditions 
they choose, including the regulation of the prices to be 
charged by the National Telephone Company for the 
use of the telephone. 2 

The Association of Municipal Corporations had de- 
manded that Parliament itself fix the maximum prices 
to be charged for the use of the telephone, as well as 
the maximum dividend to be declared by the National 
Telephone Company. But that request the Government 
refused to grant. The Government could not forget 
that in 1883, the House of Commons, under the leader- 
ship of Dr. Cameron, M. P. for Glasgow, and against 
the protests of the Government of the day, had cut 
almost in two the charges for transmitting telegrams. 
It was unwilling to give the House of Commons the 
power to make unremunerative the property of the Na- 
tional Telephone Company, for it contemplated pur- 
chasing that property in 191 1 at the latest 3 in large 

1 Report from the Select Committee on the Telegraphs Bill, 1892; 
testimony of Sir Robert Hunter, Solicitor to Post Office, q. 312, 
316, 318, 333 to 336, 339 and 340. 

a Report from the Select Committee on Telephones, 1898.; Sir 
Robert Hunter, Solicitor to Post Office, q. 279 to 298, 259 and 265 ; 
and Hansard's Parliamentary Debates; March 1, 1895, p. 218, Mr. 
Arnold Morley, Postmaster General. 

' Report from the Select Committee on the Telephone Service, 
1895 ; q. 103. The following question and answer passed between 
the Postmaster General, who was Chairman of the Committee, and 
Mr. J. C. Lamb, Assistant Secretary to Post Office. "And, no doubt, 



90 THE TELEPHONE IN GREAT BRITAIN 

part for the purpose of making good the losses which it 
was suffering by reason of the fact that the House of 
Commons by various acts of intervention had made the 
State telegraphs unremunerative. 1 Again, the Govern- 
ment was immediately interested in the prosperity of 
the National Telephone Company, by reason of the 10 
per cent, of the gross receipts which that company paid 
the Post Office. These considerations underlay the 
argument with which Sir Robert Hunter, Solicitor to 
the Post Office, replied to the demand of the Associa- 
tion of Municipal Corporations that the House of Com- 
mons fix the maximum price to be charged for the use 
of the telephone, as well as the maximum dividend to 
be paid by the National Telephone Company. Sir 
Robert Hunter said : "But of course it has to be borne 
in mind that the commodity which the telephone com- 
panies supply is really a monopoly of the State. It is 
the State which has the right to transmit telegrams, 2 
and these licensees are merely acting under the authority 
of the State ; and it would be a novel principle to say 
that the State should be put under conditions of that 
kind." 3 

The unqualified power of veto, by the local authori- 
ties, upon the exercise, by the National Telephone Com- 

the taking over of the trunk wires by the State is a step in the 
direction of State acquisition of the telephones?" "Yes, I think 
that is obvious." 

1 Compare H. R. Meyer: The British State Telegraphs. 

*The High Court of Justice had held that telephone messages 
were telegrams. 

1 Report of the Select Committee on the Telegraphs Bill, 1892; 

q. 342. 



THE REFUSAL OF WAY-LEAVES 91 

pany, of the way-leave powers to be delegated to that 
Company by the Postmaster General, was conferred 
upon the local authorities in 1892 in spite of the dis- 
approval of the Post Office Department, and in spite of 
the fact that Parliament, in 1892, had before it twenty- 
two years of the disastrous working of a similar power 
of veto upon the laying of tracks by companies for 
street railway purposes. 1 Parliament, as well as the 
Government, in 1892, bowed to the will of the Associa- 
tion of Municipal Corporations, one of the most power- 
ful organizations in Great Britain, existing for the 
promotion of special interests in contradistinction to 
national interests. Lord Alverstone, Lord Chief 
Justice of England, 2 in January, 1903, spoke as fol- 
lows of the political power of this Association: "He 
wished to allude to one part of the sub- 

T jtltk7L C ihf j' ect which had onl y been touched u p° n 

Association of by the author, but which he [Lord 

Municipal Alverstone] as a Member of the House 

C orporattons 

of Commons for a great many years 

had frequently had pointedly brought before his notice. 
The author had referred to the Municipal Corporations 
Association. Only those who had been in the House of 
Commons knew the really almost unfair weight and 
power which municipal bodies had in the House, be- 
cause, not only did the local Member not dare to resist 

1 H. R. Meyer : Municipal Ownership in Great Britain. 

1 Who's Who, 1905. Alverstone, 1st Baron (cr. 1900), Sir Rich- 
ard Everard Webster, Lord Chief Justice, 1900 ; M. P., Laun- 
cesteon, 1885; Attorney General, 1885-86, 1886-92, and 1895-1900? 
M. P. (C), Isle of Wight, 1 885-1 900. 



92 THE TELEPHONE IN GREAT BRITAIN 

the wishes of his local friends, but all the municipal 
corporations acted together, and when there had been 
an attempt to get statutory powers for private enter- 
prise which was thought to conflict with the possibility 
of municipal trading in a particular place, not only was 
the influence of the municipality in that particular place 
set to work, but the influence, through the Municipal 
Corporations Association, of many other municipal 
bodies which had nothing whatever to do with the 
particular scheme. Without fear of contradiction he 
could say that the question under those circumstances 
was not fairly determined upon its merits, and was not 
fairly discussed. Being no longer in politics he had no 
right to express an opinion upon the merits of the case 
[municipal trading] beyond saying that it was a ques- 
tion of such vast importance that it ought to be 
thoroughly understood and tested upon its merits and 
not dealt with by any considerations of popularity, pub- 
lic sentiment, or anything of that kind." 1 

The Telegraphs Act, 1892, received the Royal assent 
in August, 1892. Not until May, 1894, did the Na- 
tional Telephone Company succeed in persuading a 
local authority to consent to the Company exercising 
the Postmaster General's power to open the streets for 
the purpose of laying telephone wires under the ground. 
On that date it made a contract with Manchester. In 
February and December, 1895, the Company made 

1 Journal of the Society of Arts; January 30, 1903. 



THE REFUSAL OF WAY-LEAVES' 93 

contracts with Norwich and Portsmouth respectively. 

The Municipal*- In * 8 9 6 }\ made contracts with ten 
ties misuse the municipalities ; and in September, 1897, 
Power of Veto j t ^ succee d e d m ma king contracts 
for underground way-leaves as well as the erection of 
poles in the streets with only sixty municipalities. 1 
The reason for this all but complete refusal of the local 
authorities to accept the Telegraphs Act, 1892, is set 
forth in the following resolutions, passed by a Special 
Committee of the Association of Municipal Corpora- 
tions on March 20, 1895 : "Resolved that the principles 
involved in the resolution of the Council of November 
22, 1 894, should be adhered to, namely : 'That in the 
opinion of the Council no powers should be given to 
any telephone company which will enable them to inter- 
fere with streets or with the rights of individuals in 
property, unless statutory conditions and obligations, 
are, at the same time, imposed on the company for the 
protection of the public, particularly with regard to 
maximum charges, maximum dividends, and obligation 
to supply; that the subject should be treated as an im- 
perial, and not as a local one ; and, therefore, it should 
be urged in Parliament that so much of the draft agree- 
ment between the Postmaster General and the telephone 
companies as relates to vesting in the companies the 
way-leave powers of the Postmaster General under the 
Telegraph Acts should not be carried out.' That as the 



1 Glasgow Telephone Inquiry, 1897; q. 4189, 4327, 4329, 4651, 
and pp. 255 to 295. 



94 THE TELEPHONE IN GREAT BRITAIN 

Postmaster General has refused to strike out of the 
agreement the provision objected to by this Association, 
the Corporations be recommended to refuse their con- 
sents under the Telegraphs Act, 1892, to the exercise 
by the National Telephone Company of the power of 
the Postmaster General under the Telegraph Acts. 
That the Town Clerk of Leeds and the Deputy Town 
Clerk of Liverpool be asked to represent the views of 
this Committee, as expressed in the foregoing Resolu- 
tion, before the Select Committee." 1 In other words, 
the local authorities tried to force the Government to 
authorize Parliament to fix maximum charges and 
maximum dividends, by withholding the consents with- 
out which no telephone company could provide a serv- 
ice satisfactory in quality or adequate in extent. 

The leading Scotch cities, Glasgow and Edinburgh, 
refused to give the National Telephone Company under- 
ground way-leaves because they hoped to persuade the 
Post Office to give them a telephone license. They 
Glasgow and proposed then to put in a municipal 
Edinburgh twin-wire plant and to drive from the 

field the National Company, hampered by lack of way- 
leave powers. Sir A. J. Russell, a Town Councillor 
of Edinburgh, as well as a former Lord Provost, testi- 
fied before the Select Committee of 1895 that Edin- 
burgh "would not be willing that the National Tele- 
phone Company should have the same way-leave powers 

1 Report from the Select Committee on the Telephone Service, 
1895; Q- n79> 1212 and 1351, Mr. H. E. Clare, Deputy Town Clerk 
of Liverpool. 



THE REFUSAL OF WAY-LEAVES 95 

that the City itself would exercise. That would give 
the municipal plant a decided advantage over the Na- 
tional Telephone Company in Edinburgh. . . . We are 
going to put in a cable tramway. We could lay the 
telephone wires in the slot. We would do so for the 
Post Office, but under no circumstances for the National 
Telephone Company, not even if they offered to pay 
handsomely." 1 Mr. Gaine, General Manager National 
Telephone Company, commented as follows upon this 
evidence : "Well, the ethics of a gentleman who cannot 
run his tramcars on a Sunday" . . . The attitude of 
Glasgow will be described in a subsequent and separate 
chapter. For the present, suffice it to state, that ulti- 
mately Glasgow as well as the English city of Brighton 
established municipal telephone plants, put the munici- 
pal wires underground, and persistently refused to 
permit the competing National Telephone Company to 
put its wires underground. 2 

The cities that gave the National Telephone Com- 
pany underground way-leaves, very generally inserted 
one or more of the following conditions. 3 Full rights 
were reserved to grant similar powers to other com- 
panies, or to lay underground wires for the city itself, 
should that body at any time establish a municipal tele- 

1 Report from the Select Committee on the Telephone Service, 
1895 5 Q- 992, 993 and 954 to 997. 

2 Report from the Select Committee on Post OMce (Telephone 
Agreement), 1905 ; q. 874, Mr. D. M. Stevenson, Subconvener of 
the Glasgow Telephone Committee; and q. 918, 938, 949 and 963, 
Mr. H. Carden, Alderman in Brighton. 

s Glasgow Telephone Inquiry, 1897; pp. 255 to 295. 



96 THE TELEPHONE IN GREAT BRITAIN 

phone exchange. The larger cities frequently reserved 
the right to give the National Telephone Company six 
months , notice to remove its underground plant ; from 
such notice there was no appeal. The Company com- 
monly was put under obligation not to raise its then 
charges, to show no preference or favor between sub- 
scribers, and to serve all applicants. The larger cities 
frequently stipulated that if the Company should at any 
time reduce its charges in any city of a certain size, the 
reduction in rates must be granted also to those cities. 
Practically all of the local authorities demanded annual 
payments for the way-leaves, some cities stipulating that 
if the Company at any time should pay a higher rental 
to any other city, such increased rental must be paid 
also to them. Finally, many local authorities stipulated 
that they should lay the wires underground for the 
Company, which should pay the local authority 105 
per cent, of the cost of such work. 

Though the National Telephone Company was will- 
ing to accept the foregoing conditions, some of which 
were decidedly onerous, besides being designed to 
secure objects other than the protection of the rights 
and the convenience of the public as users of the streets, 
the Company for a long time was unable to persuade 
any considerable number of local authorities to give it 
underground way-leaves. In September, 1897, tne 
National Telephone Company had secured underground 
way-leaves in only sixty cities. After that date the 
Company fared better; and in June, 1899, it had made 



THE REFUSAL OF WAY-LEAVES' 97 

contracts with 114 English municipal boroughs, 13 
Scotch boroughs, and 103 Irish urban districts. 1 

From 1880 to 1892, the British Government refused 
to let the telephone companies have any rights of way 
in the streets, lest the telephone should compete too 
successfully with the national telegraphs. From 1892 
to 1896, the municipalities, acting under the leadership 
of the Association of Municipal Corporations, for all 
practical purposes annulled the Act of 
1892, which authorized the Postmaster 
General to give the National Telephone Company rights 
of way in the public streets. The Association of Muni- 
cipal Corporations for five long years annulled an Act 
of Parliament, inflicted heavy pecuniary loss on the 
National Telephone Company, and prevented the public 
from getting an efficient and adequate telephone service, 
simply because it differed with the Government on a 
question of public policy, to-wit, whether Parliament 
should be permitted to regulate the charges of the Na- 
tional Telephone Company. This complete disregard 
of the rights of the public as the consumers of the serv- 
ices offered by the National Telephone Company w r as 
but one of several instances of disregard of public neces- 
sity and convenience shown by the State and Munici- 
palities. It had its parallel in the refusal of the several 
successive Governments of the day to amend the Tram- 

1 Hansard's Parliamentary Debates; June 20, 1899, Mr. C. 
McArthur. 

7 



98 THE TELEPHONE IN GREAT BRITAIN 

ways Act, 1870, and the Electric Lighting Act, 1888, 
after experience had shown conclusively that public 
necessity and convenience demanded that those acts be 
amended. It had its parallel in the exclusion of the 
public central electric light station from the United 
Kingdom in the long years from 1882 to 1888, the 
aforesaid exclusion being the work of the Municipali- 
ties. It had its parallel in the paralysis — by the joint 
action of Municipality and State — first, of the horse 
street railway industry; and, subsequently, of the 
electric street railway industry. The story of those 
several instances of disregard of the public necessity 
and convenience has been told elsewhere. 1 Suffice it 
here to say that it reads like a travesty and takes the 
mind back to the Dark Ages, or to one of Gilbert and 
Sullivan's comic operas. 

1 H. R. Meyer : Municipal Ownership in Great Britain. 



CHAPTER VII 

THE DUKE OF MARLBOROUGH'S PROMISE 
AND RETRACTION 

In August, 1891, the Duke of Marlborough, the head of The 
New Telephone Company, announced that his Company could 
make a profit of 12 per cent, to 15 per cent, a year while giving 
Metropolitan London an "unlimited user" service at $50 or $60 
a year. In September, 1892, after The New Telephone Company 
had been absorbed by the National Telephone Company, the 
Duke of Marlborough withdrew his previous statements, saying 
he had "bleated a good deal about a $50 telephone." The pro- 
spectus of the New Telephone Company had announced that the 
cost of installing telephone exchanges would average about $170 
per subscriber's wire, in the United Kingdom as a whole. At 
that time the National Telephone Company's capitalization was 
$350 per telephone in use, of which sum about $120 was "water." 
A large and influential section of the public refused to accept the 
Duke of Marlborough's retraction ; and to this day it has insisted 
that a telephone plant could be installed in Metropolitan London 
for less than $200 per subscriber's wire, and that an unlimited 
user service could be given for $50 per subscriber. Engineering 
estimates to that effect were submitted to Parliamentary Select 
Committees by the London County Council in 1895 and 1898. 
Mr. W. H. Preece, Engineer-in-Chief to Post Office, and Mr. J. C. 
Lamb, Assistant Secretary to Post Office, rejected those estimates. 
In March, 1906, the Post Office Metropolitan London telephone 
plant had cost $270 per telephone in use. The Post Office, upon 
opening its Metropolitan London telephone exchange, in March, 
1902, rejected the public request for a $50 unlimited user tariff. 
It established an unlimited service tariff of $85 a year, but only 
in deference to public opinion. It would have preferred to es- 
tablish the measured service tariff exclusively, believing that the 
unlimited service tariff is unsound in principle, and defensible 
only on grounds of political expediency. 

99 



100 THE TELEPHONE IN GREAT BRITAIN 

The New Telephone Company, Limited, had been 
incorporated in 1884, an d had become the possessor of 
two Post Office telephone licenses covering the whole 
of the United Kingdom; but it had not engaged in 
actual work. So long as the Bell and Edison patent 
rights had been in force, it had been difficult for out- 
siders to obtain telephone instruments; and after the 
effluxion of those patent rights in 1890 and 1891, it 
had been difficult for an outside company to develop 
local exchanges, because the National Telephone Com- 
pany possessed the trunk lines. 1 In August, 1891, the 
Duke of Marlborough, the head of the New Telephone 
The Duk of Company, wrote to The Times the first 
Marlborough's of a series of open letters in which he 
Promise contended that his Company could sup- 

ply the 5, 000, OCX) people living in Metropolitan London 
with a metallic, or twin-wire circuit, telephone at the 
rate of $50 a year per subscriber — or at the outside at 
$60 a year — and make a net profit of 12 per cent, to 
1 5 per cent, a year. He stated that the Company's en- 
gineering estimates had been approved by Mr. A. R. 
Bennett, formerly with the National Telephone Com- 
pany, and by Professor Silvanus P. Thompson and Mr. 
A. B. W. Kennedy, Vice-President of the Institution 
of Mechanical Engineers. The two latter gentlemen 
had had no experience in telephone construction or 
operation. The Duke of Marlborough added that the 

1 Report of the Select Committee on Post Office (Telephone 
Agreement), 1905; p. 310, Prospectus of the New Telephone Com- 
pany; and The Times; July 28, 1892. 



PROMISE AND RETRACTION 101 

New Telephone Company would apply to Parliament 
in 1892 for underground way-leaves, under the promise 
to establish a fiat rate of $50 a year. 1 At the same 
time, he, or his supporters, organized the Association 
for the Protection of Telephone Subscribers in London, 
which soon acquired some 1700 members. In the fol- 
lowing year, 1892, the New Telephone Company sup- 
ported the Government's Bill to acquire the National 
Telephone Company's trunk lines. 2 

On July 27, 1892, it was announced in The Times 
that on the following day Messrs. N. M. Rothschild and 
Sons 3 would offer to the public the New Telephone 
Company's stock — $3,750,000 — and that the National 
Telephone Company would take one-third thereof, or 
The Duke of $1,250,000. On September 6, 1892, 
Marlborough's the Duke of Marlborough published in 
Retraction T]w T{mes R lettef whJch repudiated 

his previous statements that it was possible to supply 
telephone service in Metropolitan London for $50 a 
year per subscriber. The Duke of Marlborough said : 

1 The Times; August 29, and September 5 and 23, 1891. 

2 The Times; September 6, 1902. 

3 The Economist of July 30, 1892, commented as follows upon 
the connection of Messrs. Rothschild with the New Telephone 
Company : "The promoters of the New Telephone Company, who 
have during the past week invited subscriptions for $2,440,000, 
part of an authorized capital of $3,750,000, have displayed a con- 
siderable amount of prudent forethought in securing the services 
of Messrs. N. M. Rothschild & Sons as their issuing agents, for 
although the new departures made by that firm in recent years 
have sometimes seemed to old-fashioned p*eople somewhat venture- 
some, the reputation of the great financial establishment still stands 
high among the investing classes of the country. We cannot believe 
however that their reputation will be enhanced by their connection 
with the New Telephone Company." .... 



102 THE TELEPHONE IN GREAT BRITAIN 

"Mr. Begg suggests that I have bleated a good deal 
about a $50 telephone. No doubt I have. Had we 
gone into rate-cutting [with the National Telephone 
Company], as between the two Companies we would 
probably have come to this [$50 rate] ; and I still main- 
tain that it is quite possible that, as the industry in- 
creases, a considerably lower rate [than the existing 
one] may be practicable. But though I did say a good 
deal more about a lower rate [than the one enforced by 
the National Company], I said a great deal also about 
efficiency." .... 

The New Telephone Company was absorbed by the 
National Telephone Company, which Company appears 
to have paid $2,199,480 for the New Telephone Com- 

: pany shares ; and to have acquired about 
The National <> <> , 1 <• 

Telephone Com- $900,000 or $1,200,000 worth of prop- 

pany absorbs the erty. 1 Upon the latter point, however, 

New Telephone t ^ e ev id ence j s fragmentary and un- 
Company ,.,■•, 

. satisfactory; and it may be that the 

National Telephone Company acquired practically no 
property through the absorption of the New Telephone 
Company. 

Mr. J. C. Lamb, Second Secretary to Post Office, in 
1898 expressed the belief that the Postmaster General 
of 1892, Sir James Fergusson, acting on behalf of the 
Government, had facilitated the amalgamation of the 
two Companies. He added that it would have served 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 5104, 5105, 4860 to 4865 and 4809, Mr. J. S. Forbes, Chair- 
man National Telephone Company. 



PROMISE AND RETRACTION 103 

no purpose to purchase the National Company's trunk 
lines while leaving the New Telephone Company in 
possession of licenses giving that Company legal power 
to establish trunk lines, as well as local telephone ex- 
changes whose areas need not conform to the areas 
prescribed for the National Telephone Company. 
"Therefore, from the point of view of the Government 
policy it was necessary that an agreement should be 
arrived at with both groups of companies, and the 
agreement could not be arrived at, unless those two 
groups put their heads together and came to an under- 
standing." 1 

Before the Select Committee of 1895, Mr. J. S. 
Forbes, Chairman National Telephone Company, testi- 
fied that the result of the negotiations between the 
National Company and the New Company had been 
to convince the Duke of Marlborough that the engi- 
neering estimates upon which the New Company had 
announced that it would serve Metropolitan London 
for $50 a year per subscriber were unreliable both as 
regards the capital outlay and the annual income; and 
that the ultimate result of competition between the two 
Companies would be consolidation after a large amount 
of capital had been wasted through duplication of 
plant. 2 

1 Report from the Select Committee on Telephones, 1898; q. 576 
to 580, and 1 139 to 1 140. 

a Report from the Select Committee on the Telephone Service. 
1895 ; q. 4503 to 4527, 4865 and 4421. 



104 THE TELEPHONE IN GREAT BRITAIN 

The prospectus of the New Telephone Company had 
promised a return of 12 per cent, a year upon an invest- 
ment of $3,750,000; which investment was to provide: 
in Metropolitan London, a metallic circuit telephone 
plant which would accommodate 10,000 subscribers, be- 
sides having switchboards and other exchange appara- 
tus sufficient for 25,000 subscribers; and in the prov- 
inces a number of metallic circuit telephone exchanges 
with upward of 12,000 subscribers, and 400 public 
pay stations. In other words, the prospectus had esti- 
mated the cost of installing telephone exchanges in the 
United Kingdom as a whole at about $170 per sub- 
scriber. At that time the capitalization of the National 
Telephone Company was about $350 per telephone in 
use, of which sum about $120 was "water." 1 

A large and influential section of the public, includ- 
ing the London County Council and the Corporation 
of the City of London, never have accepted the Duke 
of Marlborough's retraction. From 
The Aftermath jg^ down tQ the present m0 ment, they 

have insisted that but for the "water" in the capitaliza- 
tion of the National Telephone Company, the National 
Telephone Company would have been able to make a 
reasonable profit while giving Metropolitan London a 
rate of $50 a year for unlimited service. On the other 
hand, the net earnings of the Company have been suffi- 
cient to pay upon the capital actually invested an aver- 

1 Report of The Select Committee on Post Office (Telephone 
Agreement), 1905; p. 248; and The Electrician; April 5, 1900. 



PROMISE AND RETRACTION 105 

age annual return of 8.66 per cent, in the years 1892 
to 1897; and 7.98 per cent, in the years 1898 to 1904. 
The returns actually distributed among the holders of 
the Company's securities have been less than the fore- 
going figures would indicate, for the Company accumu- 
lated in the years 1892 to 1904 a surplus of $8,092,050. 
But even if the whole of the net earnings had been dis- 
tributed among the security holders, one could not say 
that the latter had obtained an excessive return. 

In 1895, the London County Council submitted to 
the Select Committee on the Telephone Service engi- 
neering estimates prepared independently by Mr. John 
L. Newland and Sir Alexander Binnie. Mr. Newland 
had been responsible for the New Telephone Company's 
estimate of 1892; and he had at one time been in the 
service of the National Telephone Company. Sir 
Alexander Binnie, Chief Engineer to the London 
County Council, had not had any experience in building 
or operating telephone exchanges. On the strength of 
those engineering estimates, the London County Coun- 
cil argued that $50 a year for unlimited service was a 
reasonable tariff for Metropolitan London. 1 

Mr. Newland estimated at $200 per subscriber the 
capital cost of a metallic circuit telephone system which 
would serve 10,000 subscribers, and would consist 
mainly of wires run in overhead cables attached to 
houses. He said that the capital expenditure required 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 1 61 3 to 1620, Mr. W. H. Dickinson, Deputy Chairman 
London City Council. 



106 THE TELEPHONE IN GREAT BRITAIN 

for an underground system could "not be lightly enter- 
tained." He counted upon the London County Coun- 
cil obtaining statutory power to attach wires to private 
property, and estimated the annual cost of that privi- 
lege at $2.40 per subscriber. At that time the Na- 
tional Company was paying $8 per subscriber for way- 
leaves from house-top to house-top. Mr. Newland 
also estimated at 400 yards to 500 yards, the average 
distance between the exchanges and the subscribers' 
premises; but in order to be "on the safe side/' he 
assumed an average distance of one-half a mile. In 
1904, the average distance between the Post Office's 
Metropolitan London exchanges and the Post Office's 
subscribers was 1.5 miles; and in 1898 the correspond- 
ing distance for the National Telephone Company's 
Metropolitan London system was about 2 miles. 1 

Sir Alexander Binnie's estimate of the cost of a 
telephone system for 10,000 subscribers, the wires to 
be largely over head, was $180 per subscriber, or $200 
at the outside. Sir Alexander Binnie's estimates of 
the annual cost of way-leaves, and the average length 
of the subscribers' wires agreed with Mr. Newland's 
estimates. Sir Alexander Binnie also agreed with Mr. 
Newland that a $50 tariff for unlimited service should 

1 Report from the Select Committee on the Telephone Service, 
*895 ; p. 305, and q. 4457 to 4459 and 4464, Mr. J. S. Forbes, Chair- 
man National Telephone Company; Report from the Select Com- 
mittee on Telephones, 1898, q. 7378 and 7379, Mr. W. E. L. Gaine, 
General Manager National Telephone Company ; and q. 8368 and 
8371, Mr. D. Sinclair, Engineer-in-Chief to National Telephone 
Company ; and Report of the Postmaster General on the Post Office, 
1904, p. 25. 



PROMISE AND RETRACTION 107 

be quite sufficient; adding that there was practically 
no doubt that a $40 rate would be practicable. 1 

Mr. W. H. Preece, Engineer-in-Chief to Post Office, 
in 1895, estimated at $225 per subscriber the cost of 
an overhead telephone system in Metropolitan Lon- 
don; and at $275 per subscriber, the cost of an under- 
ground system. 2 

Mr. J. C. Lamb, Assistant Secretary to Post Office, 
commented as follows upon the engineering estimates 
submitted by the London County Council. "The evi- 
dence which has been given with regard to [the possi- 
bility of] low rates in this country is the evidence of 
persons who have merely made estimates and have had 
no practical experience of the administration of the 
telephone. Not one of the gentlemen who has given 
an estimate has had six months' experience of practical 
administration ; that is, administration taking into view 
every possible item of expense, not merely engineering 
expense, but the whole expense of management. In 
that view, and also seeing that we cannot entirely shut 
out the question that the State may have to take over 
the telephones in this country some day, I should say 
that prudence would point to a considerable caution in 
regard to any general reduction of rates [tariffs], or 
any policy which would bring about a reduction of 
rates I say that prudence would point to the rates 

1 Report from the Select Committee on the Telephone Service, 
1895 ; P- 303. 

2 Report from the Select Committee on the Teleptone Service, 
1895 ; Q- 2 7i5, 3*73 to 3176, and 2877 and following. 



108 THE TELEPHONE IN GREAT BRITAIN 

being maintained at a fair point, which would afford a 
certainty of profit, and while I should hope that some 
day, if the telephones did come into the hands of the 
State, it would be possible to reduce the rates, I should, 
as an administrator, like to proceed upon the ground 
of actual experience, and not on the ground of mere 
estimates." 1 

In 1898, on behalf of the London County Council, 
Sir Alexander Binnie, resubmitted to a Select Com- 
mittee his estimate that a telephone system could be in- 
stalled in Metropolitan London at a cost of $190 per 
subscriber. At the same time Mr. A. R. Bennett, who 
had at one time been in the service of the National 
Telephone Company, submitted an estimate of $180 
per subscriber. 2 

The Post Office opened its Metropolitan London tele- 
phone system in the spring of 1902. In March, 1906, 
it had in use 32,879 telephones. At that date the Post 
The Cost of Office's capital expenditure had been 
"Spare" Plant $270 per telephone in use, about $90 of 
that sum representing expenditure upon "spare" plant. 
In 1903-04, the capital investment had been $365 per 
telephone in use; about $167.50 of that sum represent- 
ing investment in spare plant. Upon the aforesaid 
dates, the Post Office's spare underground wire had 

1 Report from the Select Committee on the Telephone Service, 
1895; Q. 5225. 

2 Report from the Select Committee on Telephones, 1898; 
q. 2733, Sir Alexander Binnie ; and q. 1877, Mr. A. R. Bennett. 



PROMISE AND RETRACTION 109 

been respectively 43.8 per cent, and 53.6 per cent, of 
the total underground wire. 1 

One reason for the wide divergence between the 
estimates submitted by the London County Council in 
1895 and 1898, and the actual cost to the Post Office, 
was that the County Council had proposed an over- 
head telephone system, whereas the Post Office had 
constructed an underground system. Another reason 
for the divergence between estimate and outcome was 
that the London County Council had misjudged the 
effect of the fact that a growing telephone business re- 
quires the investment of a large amount of capital in 
spare plant which is held in readiness for new subscrib- 
ers. The amount of spare plant required will depend 
largely upon the rate at which the subscribers are in- 
creasing. The success or failure of persons who esti- 
mate the cost of a proposed telephone system, therefore, 
will be determined largely by the success with which 
such persons forecast the growth of their system. 
In 1898, Mr. J. W. Benn, the representative of the 
London County Council, submitted to a Parliamentary 
Select Committee the estimate accepted by the London 
County Council. That estimate assumed that the sub- 
scribers would grow at the rate of 2,500 a year, under 



''■Report of the Postmaster General on the Post Office, 1904 and 
1906. In 1904 the spare capacity of the National Telephone 
Company's exchanges was 41.2 per cent.; the spare capacity of the 
underground ducts and conduits was 35.4 per cent.; and the spare 
capacity in the underground cables was 41.6 per cent. Report of 
the Committee on Post Office (Telephone Agreement), 1905 ; q. 639, 
Mr. W. E. L. Gaine, General Manager National Telephone Company. 



110 THE TELEPHONE IN GREAT BRITAIN 

a flat rate of $50 a year for business premises, and $35 
a year for dwelling houses. 1 In the four years end- 
ing with March, 1906, the Metropolitan London Post 
Office Telephone Exchange acquired 33,000 subscribers 
and the National Telephone Company, in the three years 
and six months ending with July, 1905, increased the 
number of its London subscribers by about 30,ooo. 2 In 
this connection it should be added that in London the 
Post Office and the National Telephone Company had 
divided the field and were not competitors. 

When the Post Office opened its London Telephone 
Exchange it rejected the demand for an unlimited 
service at $50 or $60 a year. It was only in deference 

The Post Office to a P u ^ nc opinion created by the large 
opposed to "Un- users of the telephone that the Post 
limited Service" office retained the unlimited service 
rate at all. It established an unlimited service rate 
which was practically that of the National Telephone 
Company, namely, $85 for the first instrument, and $70 
for each additional instrument. In addition, the Post 
Office established a measured service rate which made 
a distinction between subscribers located within the 
County of London, 3 and subscribers located outside 
the County of London, but within the Metropolitan 
London telephone area (630 square miles). The 

1 Report from the Select Committee on Telephones, 1898; q. 2498 
to 2503. 

3 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 13 and 687. 

3 Area 121 square miles. 



PROMISE AND RETRACTION 111 

former pay $25 down, and 2 cents per call to a sub- 
scriber within the County of London, and 4 cents per 
call to a subscriber outside the County of London, but 
within the Metropolitan area. The latter pay $20 
down, and 2 cents per call to a subscriber on the same 
exchange, and 4 cents per call to a subscriber on any 
exchange other than their own, but within the London 
area. Both classes of subscribers must guarantee to 
make calls aggregating at least $7.50 a year. Under 
that scheme of charges, 90 per cent, of the London 
Post Office Telephone Exchange subscribers, in 1905, 
were measured service subscribers; and the average 
receipts per subscriber, unlimited service and measured 
service, were $42. 50. 1 

At first blush it might seem that the fact that the 
London Post Office Telephone System almost paid its 
way in 1904-05, with average receipts of $42.50 per 
subscriber, supported the contention that a rate of $50 
per subscriber for unlimited service would be profitable. 
But it must be borne in mind that the operating ex- 
penses of a telephone system of whose subscribers 90 
per cent, are on measured service are radically lower 
than the operating expenses of a system whose sub- 
scribers are mainly on unlimited service. Before a 
Select Committee of 1905, Mr. John Gavey, Engineer- 
in-Chief to Post Office, stated that with an extensive 
telephone system, based mainly on the unlimited serv- 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 2109, Mr. H. B. Smith, Permanent Secretary 
to Post Office. 



112 THE TELEPHONE IN GREAT BRITAIN 

ice rate, it was nothing unusual for subscribers to ini- 
tiate 30 or 40 calls a day on a single line. He added 
that the operating expenses increased nearly in the 
same proportion as the increase in the number of calls. 
He stated that in London 80 per cent, of the calls 
originating at any exchange had to be completed 
through a second change; and then gave the following 
data as to the operating expenses occasioned by various 
classes of subscribers, assuming that 80 per cent, of 
the calls originated by each class would have to be 
completed through a second exchange. Subscribers 
originating on an average four calls a day occasioned 
an annual expense of $6.26; those originating eight 
calls a day occasioned an expense of $11.36; and those 
originating 12 calls a day occasioned an expense of 
$I5.84. 1 When one considers these facts in connec- 
tion with the further fact that an unlimited service rate 
of $50 would have increased the proportion of unlim- 
ited service subscribers from .10 per cent, of the total 
subscribers to at least 50 per cent, and very possibly 
even to 75 per cent., or more, one is compelled to con- 
clude that the adoption of an unlimited service rate of 
$50 a year would have resulted in heavy annual losses 
to the London Post Office Telephone System. 2 

To summarize : the experience of the Post Office as 



1 Report of the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 1804 and p. 283. 

3 Report of the Postmaster General on the Post Office, 1904, 
1905 and 1906. (Continued on page 113.) 



PROMISE AND RETRACTION 113 

the builder and operator of a telephone system in 
Metropolitan London, contradicts the 
statements made originally by the New 
Telephone Company, and repeated subsequently by the 
London County Council and the Corporation of the 
City of London, that it was possible to install telephone 
systems in Metropolitan London at an average cost of 
about $200 per subscriber ; and that it was possible to 
operate such systems on the basis of a tariff of $50 to 
$60 a year for unlimited service. It has been neces- 
sary to discuss this subject at some length, for the 
reason that a large part of the public dislike and dis- 
trust of the National Telephone Company has been due 
to the persistent assertion of the London County Coun- 
cil, the Corporation of the City of London, numerous 
Members of Parliament and many Members of City 
Councils, that the refusal of the National Telephone 
Company to adopt the tariff promised in 1891-92 by 
the Duke of Marlborough, was prompted by the Na- 
tional Telephone Company's desire to pay dividends 
and interest upon a largely inflated capitalization. 











Balance 


Estimated 










available 


amount re- 










toward 


quired for 




Gross 




Working 


meeting de- 
preciation, 
interest, 


deprecia 




Receipts 




Expenses 


tion * of 
plant and 










etc 


interest on 










$ 


capital at 3 










per cent. 
694,990 


1905-06. . 


1,318,225 




572,985 


745,240 


1904-05 . . 


• • • • 935,305 




468,815 
286,535 


466,490 
167,575 


572,135 
426,750 


1903-04.. 


454,no 




*The 


Post Office's 


allowance for 


depreciation appears to be 


about three per cent, on the 

8 


capital invested. 





j£4 the mwmm® inbreak obtain 

3tf#l ^]Sfeft^Dthft(^wd ei »flaidtf cfhftil&sgow municipal 
^^^ev^x£hM^i(t>^b&fi £frferkffgeat municfpaf ex- 

jjff ^t^Je^oqf ot^e3:Ne]wn;Tfe1$ipto0Se yCtorop&nphKerife 
^^(ftef iff©ft#3U$ fe^s^l^l^eicB^iqfidrfwtalliiig t^'e> 
pjig&fc ^g^^ge^aj^ n §|)rt<^hfejiDkfejmYfiMimitarbeJ0^ 
&i9J^?.8$fl$fcfr fewi^HmitQc4s86n¥kbjtari£f. oos:$ toodfi 
oi 0£$ to Bob* b to aiaccf aril no ama^e fbwa ateaqo 
-89D3n rmd 8BfI }I .3Divi38 bsiirnilnii iol ibs^ b od$ 
sdJ tol .rb^rial 9rno8 1b tosjdna sirli aenDaib crt y^Ba 
-gib briB 3>fiieib oildnq srll to JiBq s^ibI b terft no8B9i 
9nb ri93cf 8BfI YrtBqrncO snorkpteT iBnobsVl arfo to lam) 
-rmoD y^nncO nobnoJ ad) to noi:fr388B taaieiaiaq srl* o* 
anoismnn ,nobnoJ to yrl'D ^ *° nobBioqicO ad* ,Ib 
YjtD to a-iadrnsM ynBrn bnB JnsrnBihB*! to aiadmsM 
anorfqateT knobBM aril to kanta arlJ JBdi t 8lbnuo3 
yd sq-iq8i ni bssrmoiq Bob* ad) JqobB erf yriBqrncO 
-bM 3fli yd bsJqrncnq sbw r d-§ucnodhBM to 3>lnQ sdi 
sbnsbrvib ^ £C f °^ S'daab aVn^qmcO anorkpbT iBnob 
.nobBsilBliqBD bataftni yjagiBl b noqn teaiaJni bnB 

-•>t jiiuomB aldfilifivs 

iol baimp biswoJ . , ,„ ~ 

EiDjiqob .^bsniJaam smjhoW s? 01 ** 

}o * nor* .noiJEioaiq sasnsqxd aiqi303H 

bnB infilq .JesiaJni » * 

no Jasmin -;) j 9 

£ iB lBiiqB3 ' i 
.Jnaoiaq 
$ 

OQO.^Qd o\^,u\ l%Q,z\Z a&&,8U«l do-20Ql 

g£i,£^g oo> t dd> 2i8,8dj> 20£,g£Q go-^ooi 

oz\$^ 2^2,^01 e&2<d8s 011^21. ^o-£oqi 

sd oJ giBaqqfi noitsbaiqab tol aonfiwolls a'aofflO Jso 1 ! ariT * 

.fotaovni Ir> J i: [i.-> orh no .trnn i ; ; oatrfo Jnocfs 



HIATDia TA3.KD Xi 3 /K)i I'lilJilT HHT Oil 

briB batelqmoD sbw tomaargA arIT .so8i ^au^gwA ni 

8BW Ji JucJ ,^q8i ni anomrnoD lo aauoH arb s-rofed bisl 

.dQ8i jIdibM liJnn barrgra Ion 

-ic ! lo isdrroM j >(^^-J^7rI \$f j£Q 81 4oibM ni 

-maM b 8B IIsw sb nobnoJ riBtiloqoiteM moil JnsniBrl 

sanoH an^HEb^^c^nj-^fl^liirq^nobnfgJssrb lo isd 

ol balnioqqB ad aattimmoD toabS b terft" anomrnoD lo 

3rlAi^ 9 fr^fc 

to inquire and report wnether the provision now made for the 

f^Wg3)nSngtftqftfeEiIfif«8iisi!4^^ te§uk§pria5) wftfesfcefrtao'E; 

ing of licenses to .local authorities or otherwise. Mr. W. H. 

^M, 3 £9^e^ 

^ffo^SJ^rfr o^»Jj?li Waft fft 
changes. Mr. Lamb argues that under the ^fsimg arrangements 

tB#T®^eafmeifirii JfcteBt<6r$BfieclMe rigJbtji^i3&©fraJili$3d9Ju3eb 

?M&^^b^ 

telephone exchanges would be liable to result in the telephone 

fafi^iricfe^tea^mteftiv^a &atbwf safiiso&gaB^iaek, 

lffii9&lth§iit^ g P5'^bi<R|l^^%fB 11 o? r **^ «°V?Aif?^ ,W 
the entire telephone business on December 31, 1911. The testi.- 

m^o^^^^m^ 

are aware that the policy of limiting the life <of franchises and 
Sfovfffin^s&ft 8©mpfifeji^"r iiU %tt 1 T ^ckrato^te?qclftriks , ite 

public. The Committee makes no 'Report ; but its^ Chairman, the 

^»Btiw»^i»rftK?fg^i<9rfjofoEff§»t^ ^$lfe>pBr!5 e M!frn^B# 

BHS^j&qmbD anorfqsbT iBnobfiW srfr lo ebnsbivib aril 

The heads of th^'^^^mefttMniSpaobegwiiaycthp 

-Fbst r 6mU aW&k NMoM^e^hsmrfM^antfJior 

marcajiqn o^th^lo^ Aq^^n.^^^^^^^ flailed 

115 



116 THE TELEPHONE IN GREAT BRITAIN 

in August, 1892. The Agreement was completed and 
laid before the House of Commons in 1894, but it was 
not signed until March, 1896. 

In March, 1895, Mr. J. W. Benn, a Member of Par- 
liament from Metropolitan London as well as a Mem- 
ber of the London County Council, moved in the House 
of Commons "that a Select Committee be appointed to 
consider the proposed draft agreement between the 
Postmaster General and the National Telephone Com- 
pany, and report with reference to the monopoly which 
may thereby be created ; the granting of telephone licen- 
ses to municipalities ; and generally on the future policy 
of the Post Office with reference to the extension of 
the telephone service/' Mr. Benn said that the Agree- 
ment "was a very serious document, because it brought 
them face to face with a new and unrestricted monop- 
oly, which, in regard to the telephone service, meant 
increased charges, the killing of competition, the death 
of municipalized telephony, a vexatious interference 
with public rights, and, what was more important than 
all, the prospect of paying 'through the nose' in 17 
years' time [191 1] for a gigantic property." He asked 
that there be inserted in the Agreement, clauses fixing 
maximum charges for the use of the telephone, limiting 
the dividends of the National Telephone Company, and 
providing for compulsory supply. 1 

The Postmaster General, Mr. Arnold Morley, re- 
plied that "he strongly held that in all matters proper 

1 Hansard's Parliamentary Debates; March 1, 1895, P- 2 °7- 



THE SELECT COMMITTEE OF 1895 117 

to them, municipalities did their work much more ef- 
fectively than the central government could, but there 

was a great distinction between tele- 
Postmaster . 

General opposed phones and such subjects as gas and 

to Municipal water. Gas and water were necessaries 
Telephone Plants r . . , ., r ,. 

for every inhabitant of the country; 

telephones were not and never would be. It was no use 
trying to persuade themselves that the use of telephones 
could be enjoyed by the large masses of the people 

in their daily life He went further and said 

that in a town like London, or Glasgow, or Belfast, an 
effective telephone service would be practically im- 
possible if the large majority of the houses were fur- 
nished with telephones, so great would be the confusion 
caused by the increased number of exchanges. He was 
not stating his own opinion, but that of experts. What 
was wanted was prompt communication, and if there 
were a large number of people connected with the 
various exchanges, and a greatly increased number of 
exchanges, you could not get that prompt communica- 
tion on which alone the value of the telephone system 
depended. Another argument against a municipal tele- 
phone system was that it was in no sense a local re- 
quirement. Year by year the telephone system was 
becoming more and more a national means of com- 
munication from town to town, and it was no more 
local in its attributes at the present time than either the 
post or the telegraph. He did not think that any one 
would say that the municipalities should have local con- 



CS^erffflSl^ag'^ffllftffl ^aTSthfe p&tion sh^uld^b^ 
&ifoa£?etf B oii^ 

bij thfe r ehSati3!A- ttP'th^Sxchcquerj^r '#illia^^^ 

^^te^^^cffb^^ t^'gi^m^aWii tSfe*Gto&ki. 

3? 9 $ faV&P%* f Mt»' r 8flffiF I ger JSff^^ 8BW bstacw afiw 
9rf *B#6Fe te& 9 SBK^ 9 feJ8aftntee^ 9 *r r «g^^i5 J?*©. 

teaffltJ, rn ^s{^Mft- f ^rfto^tfe te«i?%p« 

Tafsse ffi^lfy a**tde wto^^^6tofe6i§^a«^ 
-fl^feiirw^ imw^mwgkiy m^^soniWm^ 

W feftJefi ^5Bfd°He r thi^ 7 th4it^t f ^a^etf^a^, a#fi$feh 

W , C&ttij3SifyJ f ffamhg"«»6ilgh," thtf BiQilOffibe^ould 
ano '(nr, terft jfnrrfj Ion brb aH .fiqfiTgdbJ srf) 70 taoq 



fhNh&ti&tymv price M i;yoiir (pkMibi Eto wDw|d^aQCQyi- 
*a$n"t9? #x^inat$to\^feeftib&3M;>$tfas ih/(adfe^i(biDalidibii@f>/; 

tgfe^i^ fe3£*3®#*fe wJaltiip^iarirJaEBanayfii^KicerfliiwI 

^fefiSCtopstft^p^'elirtgtrscpnb^ anki fiainikbjg-BthegPj^lt 
aMfee^dtil^qedtlaii^jty Itsdlflin any gtiorqv^iy^^ 1 ^ 

fes feft^lsstfrerikpasfeaexpiqed} wdtflcjite^afelftrtobferisi^ 
-Jt§9s?3$eftiifrifoi ope^atwfchnorTbef 6rfl? ifonecesqa^I'iutojs. 
£ 3%*nl£Mfe a^-weH^as -MEBrWsoH. Bfeecg.Engmeefl- 
G^3©fe^^ t^rPdspOflic^rtie5tecfe€id tHsir&xguiBknte *R)MtJ§- 

^^MrW&siti 1 tlwjIJBdhflkDBDo (aDimty gfibimslKrfv^wfe- 
>hnrtM^>af bsbbseultoti^esTMd ottokf^MdoMsgdg^tifoe 
-ki^Wf iMh ^SB6mi6S«Dps3 sMjrtrijfetedcT 1^dvMt> ^Sferidaiftd 
sarid |SI*2Ale«ffl0erf2Bftiiiett a?#el(a^itoiT<te)aHeg^iK^- 

s&ttfttrife&os T^ofe)-S3rgiikii©wts.illBged tftartf feJkaNatferfal 
^^teph^i^^ei^ai^^ fcHdi^srfaeireifpcpesgisift a^^at 
^€**ndffle$al*84s rwiaaldnbe affle tegikfo mtdfc(J@HWr 

.ffi^elfr«st^lwsJinftfe&ig -draft wii^wfeorttitfty 
-%h3t fetoth^imitidittith^IcikfioSiate amy Asnp&to jferff e 
-Stefr ^q^tepten^rsosneoday; 5Fish©uldB6j3tyoOi%ti(Pf^- 
-^fencfebt^dlfr/p©^ ttP^ficoteiaeEabl^ caHtfw&arvTtfgBGd 



120 THE TELEPHONE IN GREAT BRITAIN 

to any general reduction of rates, or any policy which 
would bring about a reduction of rates. As a servant 
of the public, I certainly should not like to have a part 
in the taking over [in 1911] of a depreciated business, 
on which there might be a risk of loss to the general 
taxpayer. I say that prudence would point to the rates 
being maintained at a fair point, which would afford a 
certainty of profit, and while I should hope that some 
day, if the telephone did come into the hands of the 
State, it would be possible to reduce rates, I should, as 
an administrator, like to proceed upon the ground of 
actual experience, and not on the ground of mere esti- 
mate If the Postmaster General encourages a 

policy under which the thing [telephone business] 
could not possibly pay, and there must be a great loss, 
that whole thing has to come back on his hands some 
day as a bad bargain." Mr. Lamb added: "I think 
we have proved by actual experience that the possi- 
bility of competition [by the Post Office itself] has 
produced certain good results, and, if it were necessary, 
that possibility, I think, would produce good results 
again," that is, give the public an adequate service at 
reasonable charges. In conclusion Mr. Lamb stated 
that a notice appeared every quarter in the Post Office 
Guide that the Department was prepared to supply tele- 
phone service if a clear and definite request was made, 
that request was reasonable, and the National Tele- 
phone Company could not or would not supply a satis- 
factory service. The Postmaster General would con- 



THE SELECT COMMITTEE OF 1895 121 

sider every such request on its merits ; he had no fixed 
rule as to the minimum number of persons who must 
offer themselves as subscribers. 1 

Interesting and exceedingly instructive was the testi- 
mony of Mr. H. E. Clare, Deputy Town Clerk of 

Liverpool, who appeared as one of the 
Mr. Clare on . . 

Compulsory Sale two delegates from the Association of 

at Structural Municipal Corporations. The witness 
said the National Telephone Company 
could not be expected to give a service satisfactory in 
quality or in extent unless it were given way-leaves 
and were relieved of the uncertainty as to what would 
become of it in 19 11. In fact, the Government ought 
to give the Company a charter during good behavior, 
subject to the right of the Government to purchase at 
12 months' notice upon specified terms. Those terms, 
however, must not be cost of replacement value. He 
said : "I do not think, myself, that cost price really is 
the proper basis to go upon in buying up any under- 
taking. The value of an undertaking is what it is 
really worth for the use to which it can be put." He 
added that a company subject to compulsory sale at 
structural value had to make each year a large sinking 
fund payment, and that prevented the company to that 
extent from reducing its charges to the public. On 
the other hand, the public wanted its service as cheaply 
as it could be had, it did not want to pay extra for the 

1 Report from the Select Committee on the Telephone Service, 
1895; q. 5261, 5225, 5258, 5272, 5279, 5209, 5237 to 5241 and 5252. 



fea&§ <ffl teirtd&ng 1 the ^atfoti&ul^cltim&evim 19I1K. 

those views in the meetfftg£"®£<ifefe ^s§arfaefoBrbf-i&fk>- 
nicipal Corporations and no one ever had dissented 

3nl to arto 8R baispqaB orfw Jooq-iaviJ., , , £ 

engage . in the telephone Tmsiness. The ckmaflO .*W 

munjcipaf ielepnones was linflteato ^coll^d^aVi^^he 

eprrtiw adT .artoitoofpoD iBqipinuM ^, to-w^VLta 

Scotch cities were nonrepresented in the Association 

W^tfio-) snqrfaalaT ffitiorfeM sdi biB8 
Of Municipal Corporations. 1 

nr vpJojBiailBa-pDrnaa B„avre oXbaiaagxa ad Jon J) 
Mr. John Harrison, Towh Clerk orXeeas, who 
tavBakyBw, nsvm aiay/, n\823lmj.^n3Jx9,ai 10. yir! 



blfJOD 

1 was 

[. 




bgp, 



what 

03©d 

saiq ; out mere are some points, possibly 
loryBrfad bgo^jofinnb isliBfb b, yciBarnqP pdl avJSvof 
not of great importance, upon which P entertain a dffrer- 

1b 92BdTiuq tpJ temroavpO adl loofah ad* o* toajdwa 
ent view;) but I feel that Mr. Clare has given much 

,grmaJ asodl . .ennai baflbans npq/j aardon ^rflnora £i 
greater attention to this subject than 1 have, ana Has 

ajrl .arjlBv JrtarnaaBlqai lojzpo ad ton Jarjrn ..layaworf 
been much longer associated with the association, so 

8r yllBa-i aariq faoa *srh .Tfagvcn jmdl ton ob I", • biB& 
that possibly he is better able to speak upon that sub- 

--labnrj ynR.qrj "gtyvud rri noqu o-g ol sisbc laqoiq arfJ 

81 U, ijjriw ai ^nr>fR^aJbiin he to aulBv arIT ^ni^B*,. 
T^;s testimony pt Mr. Clare, the representative of 
9 id A .*nq3q.fiBD It thrrfw jo* £&u ad} iqi dJiow vtfBa;i 

the Association of Municipal Corporations, is of the 
±r> alBs y:ro8UiqrnoD o1 T p%\am y/iBfrraoD b l&di babba 

utmost significance. It snows mar trie members of the 
Smtfnra aglBl B yiov rbBa aMBirt oi^n/f antey iRirjioutte 

Association at heart are aware that snort lived fran- 
Ir.di nl ynBornoo axfi batrrayam inrh bnr> Jrtanr/Ba brrrrt 

chises .coupled with the provision for compulsory sale 

at structural value check the investment of capital and 
vlqnado 8B aoiviaa at! balrtBv/ arfdnq arto ,brtBd ladto ad* 

j, 1 Report from the Select Committee oyi the Telephone Service, 
■■■tft^SrVf. i4'8& V6 149*, '^38 dtid ? -i548V ? - ' 8a&2 « 2SS2 « lds£ ■•' : ?ofh 



fiaty^rte^s^^ 

industry, the el^TO^^ir^fn^Mf^fe^tH^^^e^ffi 

ffitei{Mie^l Wn^ 1 H^e^s^u^htf^gi^ilife' 10 ^ 
ffl&8i§flf ^e°f)dl^ ^ r s^tBfi^d°frS9§fii^ .fe«p^ 
wltrf^oir^&r^ ^^^StiftfttffkP^iJgaaHft &&&{& 

sWe^^e^fe c^W^ ^ftt&SFtlt* ft^J 

ready to a81Ba6**,..M ( ^ I «t«l^* i i# i ffle^^ 1 ^ 

-a^nrh^f'dal SncMndiktri'al ^elopmeHfrH .^6 T tk^^stu- 
4eitt.pa&Q^e^f)@litibsv of ^w;dDliG>Xw&&s&ipyo^ 
could be more illuminating than to find the British 
Government and the English cities alternately insist- 
ing upon and rejecting the policy of short lived fran- 
chises coupled with compulsory sale at structural value, 
accordingly as the policy happened to promote or not 
to promote their immediate pecuniary interests. 

The Committee of 1895 had no opportunity to make 
a Report ; when it assembled to agree upon its Report, 

1 H. R. Meyer : Municipal Ownership in Great Britain. 



124 THE TELEPHONE IN GREAT BRITAIN 

dissolution of Parliament was announced. 1 It is said 
to be a matter of common knowledge, however, that 
the Chairman, Mr. Arnold Morley, who was also the 
Postmaster General, submitted to the Committee a draft 
report disapproving the granting of telephone licenses 
to municipalities. But since Parliament was on the 
eve of a dissolution, and the Committee was not unani- 
mous, the draft report was withdrawn. 2 

In passing, it may be added that in 1898 Mr. Arnold 
Morley testified that when he had been Postmaster 
General, in 1892 to 1895, he had been so strongly op- 
posed to competition in the telephone business that he 
had been unable to recommend that the Government 
permit the Post Office to compete with the National 
Telephone Company in those places in which the Post 
Office had established telephone exchanges. 3 

1 Report from the Select Committee on Telephones, 1898; q. 482. 

2 The Times, January 23, 1899: The Cose of the National Tele- 
phone Company, by a Correspondent. 

8 Report from the Select Committee on Telephones, 1898; q. 6716. 



CHAPTER IX 
THE LONDON COUNTY COUNCIL EPISODE 

From 1890 to 1899, the National Telephone Company in vain 
applied to the London County Council for permission to put its 
wires under the streets. In 1899 negotiations were broken off, 
and the deadlock thus established was finally broken by the Post 
Office in November, 1901. The London County Council tried to 
use the power of veto given it by the Act of 1892, first, for the 
purpose of prescribing the National Telephone Company's tariff; 
second, for the purpose of compelling the Company to agree to 
grant free intercommunication between its subscribers and the 
subscribers to the proposed Post Office Metropolitan London 
Telephone Exchanges. From 1899 to 1901, inclusively, the Post 
Office cooperated with the London County Council in blocking 
the efforts of the National Telephone Company to get under- 
ground way-leaves in the Administrative County of London, area 
121 square miles. 

The London County Council was established in 
1889, as the local governing body, for many purposes, 
of that part of Metropolitan London comprised within 

Nine years of the Count y of London and embracing 
Unsuccessful an area of 121 square miles. In 1890, 
Negotiation the National Telephone Company made 

the first of a series of unsuccessful efforts, extending 
over a period of nine years, to obtain permission from 
the London County Council to put its wires under- 
ground within the County of London. Passing over 
the unsuccessful attempts of the first six years, the 

125 



126 THE TELEPHONE IN GREAT BRITAIN 

narrative may begin with the application made by the 

Company in May, 1896. In the preceding five or six 

years the Company had spent in Metropolitan London 

some $i,soo,ooo in converting its single overhead 

XI ^^ITT/w-O 
wires into overhead twin wires/ But it had found the 

overhgajyw^ ^m^fP^Scff^S^mF^kf s in ~ 
efficient, and it was unwilling to spend further large 
Sifms 1 ' (^ B aw o e\^f^e^^' 1 s^erif Hvlffcte^oolt o^oufo^Have 

pi Jnq ol Jioiaaircmq lol IhrmoD vinrxpD npbrroJ arto.-oi bailqqj; 

ftoWasltbefcawafeg ■ittcrftasiagfylidilfiieukiitDjli'ettQhbiaJerld* 

snPiot ,fd'm <s:q8i 1<6 foA arfi \a h navig otev fb iswoq on1 z,'t\i 
t^piDafeoKpGttlDpinorlqsbT IfinoiteW artt snidiiDZsiq lo ssoqiuq 

oj r ^ffir^hWe^^hM^^W^efefi^lM, ^'Icta* 

srli briB 8i3dno?.clrj8 ait naawted noi}£binurnrnoD73]ni so-il IriBig 

%0e€A 1 u^ri^er^ms^hfchF^n^Se i ?s?8^, 3 v^<£mT 

affbbolcf m lionrjol) Y*quoD rtobnoJT eAi Atiw. b^^sqooo. ooiftQ 
fe^^<*^nJ^P9n<^ §e^s $g 

in a formal document, to be signed by the uouncif ancf 

^rt^tarffycbnewrKg&ndili^iSS^tQTJ^iD, £&frt the Company 

StouwatytkpKdS); aaralI(psta£BlidBi(fl»H^^s of res^MrWty 
$^^3iiBjyfiar8jfG?ri^i)iIa&ifiSiS)oh0UBe§p awfhs$5© k> ^taft kto 
moil rroiaairmaq nrcido oj ,8*ib9y. sn'm to bonoq b isvo 

W. E. L. Game, General 1 Manager National Telephone Company. 

1070 ^nteafil .nobnoJ 10 vlrujoD aril nrrfaiw briuoxs 

3 Hansard's parliamentary Debates; April 2, 1897; p. 45°. Srf 
Jitiies cHG^ssi&ia a JEJIffecftlf tofl the Rlq«itftil^Titt^fca8®30««lI»nsH 1 



w^So¥whh ^iM Q h3<kmM M& l &bmvm 

%¥i!faP#SSo^^^ 

to!^i e ^Ht refus §4'rI^Fi tftcW&Wim 'm£f$$a#& 
e&tflrjfaf IJ^g^tfMrrM* f^WfeW^tf^S aft 

InW^f? atf$te£$ e ti98^9QPf-ite i^^rto£c£pcgate 
to the extent of agreeing^t^Bfpiv^ilpfeijfibftfjgfeiteB 
lionuoD vinrjoD ripbnoj srl} ,pp8i .ladmstaaS nl 

1 Report from the Select Committee on Post Office (Telephone 
County Council, and Mr. W. E. L. r Gaine, General Maaager National 

^Kteiroifip^ bsbnfirnab won ff .Bpgi* ^iBunfiT 

area, 630 square mites, was: Under a five year agreement, $85 a 
frferofte |>Bsip|©5#c(4998^rj|oitotl8fnftf3st ]dCISieM<5fi^ a6fl£$6|ift 2F&9 
each additional connection ; and $50 to dwelling houses. Under an 
annual agreement the charges were tOrtmsiness houses. -v$ior> A far 1 the 
firsr coftn%CTion,.arM $75 for each additional one; to- dwej^mgrfrpuftes. 

Wim&Si &3&&&m kM'MnWi 

ana 250a/ Mr. J. W. Benn, representing the. London County Council 



128 THE TELEPHONE IN GREAT BRITAIN 

way-leaves; and it seemed to imply that it would be 
contrary to public policy to allow the National Tele- 
phone Company to escape making way-leave payments 
within the area of one or more of the local road author- 
ities. As to the London Count Council's second re- 
quest, to-wit, a reduction to a specified figure of the 
charges made by the Company for the use of the tele- 
phone, the Company at first declined to consider the 
request, on the ground that it was clearly ultra vires of 
the County Council. But subsequently the Company 
offered to establish a measured service for such sub- 
scribers as deemed the existing flat rates too high. 
The Company furthermore offered to put itself "under 
obligations to supply service to all intending subscrib- 
ers equally and without prejudice." 1 That obligation 
the Company could not assume so long as it had no 
public way-leaves, and depended upon the good-will of 
property owners. The County Council rejected the 
offer of a measured service, being insistent upon the 
achievement of a low flat rate. 

In September, 1899, the London County Council 
abandoned the demands to which it had adhered since 
January, 1898. It now demanded that the National 
Telephone Company should agree to give its subscrib- 
ers the same tariff and terms of subscription as should 

1 Report from the Select Committee on Telephones, 1898; q. 6502 
and following, Mr. J. S. Forbes, Chairman National Telephone 
Company. In 1905 Mr. Forbes' testimony was repeated by Mr. W. 
E. L. Gaine, General Manager National Telephone Company. Report 
from the Select Committee on Post Office (Telephone Agreement) 
1905 ; q. 645 and following. 



LONDON COUNTY COUNCIL EPISODE 129 

eventually be established by the proposed Post Office 
telephone system for Metropolitan London, 1 besides 
giving free intercommunication with the future sub- 
scribers to the aforesaid Post Office system. Those 
terms the Company rejected; and negotiations were 
broken off. 2 At this time there were upward of 1,100 
people who wished to be joined to the National Tele- 
phone Company's London exchanges, but the Company 
could not reach them by way of the house-tops. 3 

On June 21, 1898, Mr. J. W. Benn, the official repre- 
sentative of the London County Council, appeared be- 
The Making of f° re tne Select Committee on Tele- 
Public Opinion phones, and, under the skilful coaching 
of Mr. James Stuart, a Member of the Committee, gave 
testimony which implied that there were numerous 
persons in London to whom the National Telephone 
Company declined to give service on the ground that 
it would not pay the Company to serve them. 4 The 
incident is but one of the numerous ones occurring 
constantly in the House of Commons and before Par- 
liamentary Select Committees, incidents based on the 
assumption, that, so far as the majority of the Members 
of the House of Commons, and the great bulk of the 



1 The Metropolitan London Post Office Telephone System was 
opened for business in the spring of 1902. 

2 Hansard's Parliamentary Debates; January 27, 1902, p. 1002, 
Mr. Austen Chamberlain, Postmaster General. 

8 The Electrician; May 12, 1899. 

4 Report from the Select Committee on Telephones, 1898; q. 2586, 
Mr. J. W. Benn. 



130 THE TELEPHONE IN GREAT BRITAIN 

outside public are concerned, one may make without 
fear of exposure statements and insinuations that would 
not pass with well informed persons. 

The deadlock established in 1899 between the Lon- 
don County Council and the National Telephone Com- 
pany, lasted until November, 1901, when it was broken 

by the intervention of the Post Office. 
Post Office J . . " 

cooperates with I n tne meantime, the National Tele- 

London County phone Company, acting with the con- 
sent of the London County Council, 
had begun to lay its wires under the ground shortly 
after the understanding of June, 1897, had been 
reached. Subsequently, when the London County 
Council withdrew its consent, the Company continued 
its underground work, with the consent of the local 
road authorities concerned. In February, 1900, the 
Postmaster General, through the Attorney General 
sought a perpetual Injunction restraining the National 
Telephone Company from opening any street or public 
road within the County of London without the consent 
of the Postmaster General and the London County 
Council. The Injunction was granted in July, 1900. 1 
The intervention of the Post Office came about as 
follows: In 1899, the Government resolved to estab- 
lish in Metropolitan London a Post Office Telephone 



1 Report from the Select Committee on Post Office {Telephone 
Agreement) , 1905 ; p. 235, Sir Robert Hunter, Solicitor to Post 
Office; and q. 557 and 645 to 647, Mr. W. E. L. Gaine, General 
Manager National Telephone Company. 



LONDON COUNTY COUNCIL EPISODE . 131 

System; but when it came to canvass for subscribers, 
it experienced great difficulty because it could not 
promise intercommunication with the subscribers to 
the National Telephone Company, who numbered be- 
tween 40,000 and 50,ooo. 1 The Telegraphs Act, 1899, 
which had authorized not only the Post Office but also 
some thirteen hundred local authorities to establish 
telephone exchanges, had prescribed the conditions un- 
der which the local authorities might demand inter- 
communication with the subscribers of the National 
Telephone Company exchanges. But the Act of 1899 
had not given the Post Office the right to demand inter- 
communication between the Post Office telephone ex- 
changes and the National Telephone Company ex- 
changes. Perhaps the Government, when framing 
the Telegraphs Bill, 1899, had deemed it unfair to ask 
for such power; perhaps it had deemed it unnecessary. 
Be that as it may, when the Government subsequently 
found that the Post Office could get practically no sub- 
scribers for its contemplated Metropolitan London 
telephone system, the Government used every means 
in its power to prevent the National Telephone Com- 
pany from getting the way-leaves required for taking 
on new subscribers. One of those means was the 
application for the Injunction granted in July, 1900. 
From July, 1900, to November, 1901, the Post Office 
and the London County Council cooperated to throw 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 13 and 15, Sir Robert Hunter, Solicitor to 
Post Office. 



132 THE TELEPHONE IN GREAT BRITAIN 

every possible difficulty in the way of the National 
Telephone Company. On the last mentioned date, the 
Company granted the Post Office's demand for free 
intercommunication; and thereupon the Post Office 
undertook to lay for the National Telephone Company 
such underground wires as it should see fit, at an an- 
nual rental of $10 per mile of double wire. The Lon- 
don County Council, on the other hand, never with- 
drew its veto upon the National Telephone Company 
laying wires underground. It said that the Post Office 
had used the London County Council until it had 
brought the National Telephone Company to terms, 
and had then thrown over the London County Council. 



CHAPTER X 

THE CITY OF LONDON EPISODE 

The City of London, desiring to compel the National Tele- 
phone Company to permit the City authorities to fix the 
Company's tariff, never has given its consent to the National 
Telephone Company laying its wires under the streets or erect- 
ing poles in the streets. In November, 1901, the Post Office 
overrode the City of London, contracting to lay such under- 
ground wires for the Company as it should suit the pleasure of 
the Post Office to let the Company have. 

In April, 1896, the National Telephone Company- 
applied to the City of London, area one square mile, for 
permission to lay pipes under ground. The Commis- 
sioners of Sewers, who were the road authority, declined 
to consider the application unless the Company should 
agree to permit the City authorities to prescribe the 
charges to be made to the subscribers to the telephone. 

At about this same time, the Post Office, in the 
interest of its trunk line service, concluded to lay addi- 
tional underground pipes from the Post Office Trunk 
Line Exchange to the National Telephone Company's 
local exchanges, in order to increase the facilities for 
long distance conversation. The Commissioners of 
Sewers withheld their consent, saying : "We will give 
the Postmaster General our consent to raise the roads, 
if he will undertake that these wires shall not be used 

133 



134 THE TELEPHONE IN GREAT BRITAIN 

by the National Telephone Company." The Postmaster 
General, unlike the National Telephone Company, has 
the power to appeal from any local road authority, first 
to a stipendiary magistrate or to a County Court judge, 
and then to the Railway and Canal Commissioners. 
The Postmaster General made use of his right of appeal, 
and was sustained in both courts. Mr. Justice Wright 
gave the judgment of the Railway and Canal Com- 
missioners, saying: "I think, first, that the objection 
which is made is not of a class which it was intended 
these street authorities should be enabled to raise. I 
think the objections which they are entitled to raise 
Public Con- must be objections of a kind which con- 

venience, not cern them as a road authority, and that 
Official Caprice here the objection which is raised is not 
in their interest as a road authority at all, and does not 
concern them as such. But secondly, even if they can 
be heard to raise an objection of that kind, it seems to 
me that this objection which they have raised is clearly 
an unreasonable one. First of all, I should say it was 
contrary to the general principles of common law, and 
contrary, therefore, to the probable intention of this 
enactment, 1 that they, the mere street authority, should 
have the right to exclude any portion of the public 

1 The Commissioners of Sewers claimed to act under Tele- 
graphs Act, 1863, section 5, subsection 3 : "Any consent may be 
given on such pecuniary or other terms or conditions (being in 
themselves lawful), or subject to such stipulations as to time or 
mode of execution of any work, or as to the removal or alteration 
in any event of any work, or as to any other thing connected with 
or relative to any work, as the person or body giving consent thinks 
fit." 



THE CITY OF LONDON EPISODE 135 

whatever. Any objection which they may raise, it 
seems to me, must be objections affecting, prima facie 
at any rate, the whole of the public, the whole of the 
persons who may be concerned in the matter. This 
objection does not apply to the whole of the public. 
The very essence of it is that it is an objection to the 
use, by a particular company, of these junctions in order 
that that company may be brought to terms as to their 
tariff." 1 

Mr. William H. Preece, Engineer-in-Chief to the Post 
Office, in testifying upon the foregoing episode before 
the Select Committee of 1898, used these words : "Look 
at the consequence of that refusal. In the case of the 
City this quarrel has been going on for a year and a half, 
and for more than twelve months we have been pre- 
vented from carrying out improvements in the working 
of the system in London, which the public would have 
had the benefit of twelve months ago if the City people 
had not been so stupidly obstructive." In reply to Mr. 
Bartley's question : "Do you use the word 'stupidly' 
meaningly? Would you not rather withdraw that 
The Manufacture word?" Mr. Preece replied: "I used it 
of Public Opinion very meaningly, sir." He added : "The 
City gentlemen did not stop there; they issued the 
correspondence over the whole country and they 
have scattered and published an absolute fallacy 2 over 

1 Report from the Select Committee on Telephones, 1898; q. 310, 
and 6934, Sir Robert Hunter, Solicitor to Post Office. 

* To wit, that the Post Office proposed to lay underground wires 
between the exchanges of the National Telephone Company and the 
premises of the Company's subscribers. 



136 THE TELEPHONE IN GREAT BRITAIN 

the whole country, and have led such common-sense 
people as the Corporation of Glasgow and the Corpora- 
tion of Edinburgh to take up the same line ; the result 
is we are now in trouble with these gentlemen ; so that 
we have great trouble with the big cities of Edinburgh 
and Glasgow, and we have had trouble in Brighton." 1 

The City of London, within the area of which is 
transacted daily more business than is transacted within 
any area of similar size in the world, sent to represent 
it before the Select Committee of 1898, Mr. Alpheus 
C. Morton, 2 a Member of the Common Council, who 
A City of London saw fit to use these words in the open- 
Statesman ' m g f his statement. "I am sorry to 

have noticed, during the last twenty or thirty years, 
that London has been more victimized by public com- 
panies than any other part of the United Kingdom; 
therefore, I suppose they think : We need not take 
much notice of the London people ; we may treat them 
how we like" [in the matter of the quality of the serv- 
ice given.] 3 

Mr. Morton repeated before the Committee tne 
charge that the Post Office had not only claimed the 
legal power to lay underground wires for the National 
Telephone Company between the Company's exchanges 
and the premises of the Company's subscribers, but had 

1 Report from the Select Comittee on Telephones, 1898; q. 5331, 
5333 and 4976, Mr. W. H. Preece, Engineer-in-Chief to Post Office. 

2 Who's Who, 1907. Morton, A. C, M. P. (L.) since 1906; 
Architect and Surveyor. Member of Common Council, City of 
London, since 1882; M. P. (L.) Peterborough, 1889-95. Club: 
National Liberal. 

• Report from the Select Committee on Telephones, 1898; q. 4000. 



THE CITY OF LONDON EPISODE 137 

actually proposed to exercise that right. It was the 
latter statement that Mr. William H. Preece denom- 
inated an "absolute fallacy." As a matter of fact the 
Post Office had claimed the legal power to lay under- 
ground any kind of wire for any person, but it never 
had proposed to do anything more than lay wires for 
the purpose of connecting its own trunk line exchanges 
with the National Telephone Company's local ex- 
changes. 1 

In March, 1898, Mr. J. S. Forbes, President Na- 
tional Telephone Company, wrote as follows to Sir H. 
D. Davies, Lord Mayor of London, and M. P. for 
Chatham : "My colleagues .... and myself will be the 
first to admit that the service as at present conducted 
leaves much to be desired, but why? Not for want of 
will on the part of the Company, nor for want of 
money and skill to cope with the business ; but for the 
want of those reasonable facilities .... without which 
Why London was ft ' 1S impossible to conduct the business 
Badly Served with the highest efficiency. It is singu- 
lar that in this matter [Metropolitan] London, gener- 
ally so advanced, should lag behind Liverpool, 
Manchester, Birmingham, Leeds and many other large 
cities and towns in which the Company has succeeded, 
by agreement with the authorities, in securing upon 
moderate and reasonable terms the necessary use of the 

1 Report from the Select Committee on Telephones, 1898; q. 4032 
to 4054, Mr. A. C. Morton; q. 5338, Mr. W. H. Preece; and q. 305 
to 333, and 6934 to 6951, Sir Robert Hunter, Solicitor to Post Office. 



138 THE TELEPHONE IN GREAT BRITAIN 

streets for laying the wires underground, to the im- 
mense advantage of the users of the telephone, owing 
to the marked improvement in promptness and efficiency 
of all kinds which has immediately followed. It is 
true that in some few cases such powers have been 
granted in disconnected portions of the London area; 
but apart from this the Company's net-work of lines 
accommodating now close upon 17,500 subscribers, 
exists upon sufferance, and is subject to constant inter- 
ference and interruptions by persons who, from caprice 
or other motives, inflict heavy loss upon the Company 
and serious inconvenience on the subscribers. Under 
such a condition of things perfect telephony cannot 
possibly be obtained ; whilst, of course, it tells directly 
against economy of working; and whilst it lasts the 
telephone service must continue to be both inefficient 
and (relatively) costly." 1 

The city of London never gave the National Tele- 
phone Company way-leaves in the public streets. But 
in November, 1901, the Post Office made an agreement 
with the National Telephone Company to lay under- 
ground for the Company, on rental terms, such wires 
as it should suit the pleasure of the Post Office to let 
the Company have in the City of Lbndon and elsewhere 
in the so-called Metropolitan London telephone area. 

1 Report from the Select Committee on Telephones, 1898; p. 515. 



CHAPTER XI 
THE GLASGOW EPISODE 1 

The National Telephone Company asks the Corporation of 
Glasgow for underground way-leaves, in order that it may re- 
place its earth-return circuit with a metallic circuit, and thus give 
the public an efficient as well as an adequate service. The Cor- 
poration refuses way-leaves, for two reasons. First, it wishes 
the Company's service to remain bad, in order that it may create 
a public dissatisfaction which shall compel the Government to 
abandon its past policy of refusing to give any local authority a 
telephone license. Second, after obtaining a telephone license, 
Glasgow proposes to install an underground metallic circuit 
plant, and to destroy the Glasgow plant of the National Tele- 
phone Company, that' Company being handicapped by lack of 
underground way-leaves. In September, 1897, the Government 
appointed Andrew Jameson (now Lord Ardwall), Sheriff of 
Perthshire, a Commissioner to inquire into the telephone service 
at Glasgow. The Commissioner reported that the continued in- 
efficiency of the telephone service at Glasgow for the most part 
was due to the Corporation's refusal to give the National Tele- 
phone Company underground way-leaves ; that such refusal was 
neither reasonable nor justifiable on grounds of public policy or 
any other grounds, unless it be deemed that the Corporation 
were justified in their refusal because they desired to establish a 
municipal telephone system, and to place the National Telephone 
Company "at an enormous disadvantage" in competing with them 
for the patronage of the public. 

1 Report addressed to the Lords Commissioners of Her Majesty's 
Treasury by Andrew Jameson, Q. C, Sheriff of Perthshire, Com- 
missioner appointed to inquire into the Telephone Exchange Service 
in Glasgow, together with Minutes of Evidence, 1897. Ardwall, 
Lord, Andrew Jameson ; Senator of College of Justice in Scotland 
since 1905 ; Sheriff of Roxburgh, Berwick and Selkirk, 1886 to 1890; 
Sheriff of Ross, Cromarty and Sutherland, 1890 to 1891 ; Sheriff of 
Perthshire, 1891 to 1905. Who's Who, 1906. 

139 



140 THE TELEPHONE IN GREAT BRITAIN 

In the year 1891, the Corporation of Glasgow ob- 
tained from Parliament a Private Act authorizing the 
Corporation to install electric street railways. Upon 
the request of the National Telephone Company, Parlia- 
ment inserted in the Act a clause obliging the Corpora- 
tion so to construct its electric tramways as not to 
injure the National Telephone Company's property by 
National Tele- causin g induction currents in the Com- 
phone Company's pany's wires. The protection given the 
Protective Clauses National Telephone Company was 
limited to two years, on the theory that in that space 
of time the Company could convert its earth-return 
system to the metallic circuit system, which latter would 
not be injuriously affected by the currents employed by 
electric tramways. But the Company could not obtain 
underground way-leaves in the streets, and therefore 
it took no steps to convert its property to the metallic 
circuit system. The Corporation, on the other hand, 
advertised for bids for the construction of seven miles 
of electric street railway, the contractor to assume all 
the obligation incurred by the city under the protective 
clause secured by the National Telephone Company. 
No contractor proved willing to assume that obligation, 
and the city abandoned its electric tramway scheme. 
In 1894 or 1895, the National Telephone Company 
again secured a two-year protective clause; and in 
1897, Mr. James Colquhoun, Treasurer of the Corpora- 
tion of Glasgow, asserted before Commissioner 
Jameson that the protective clauses given the National 



THE GLASGOW EPISODE 141 

Telephone Company had deterred Glasgow irom in- 
stalling electric street railways. Mr. Colquhoun's 
assertion is contradicted by the fact that Glasgow 
waited until January, 1899, before resolving to convert 
its horse tramways to electric tramways, although the 
protection given the National Telephone Company 
expired in 1896 or 1897. But even if Mr. Colquhoun's 
contention were supported by the facts, the merits of 
the dispute obviously would be with the National Tele- 
phone Company. It would have been entirely unreason- 
able to ask the Company to replace its house-top to 
house-top earth-return circuit system by a house-top 
to house-top metallic circuit system. The replacement 
in question would have been very expensive ; and even 
at that it would have resulted in an inefficient telephone 
system, which, sooner or later, must have been replaced 
by an underground wire system. The reasonableness 
of the National Telephone Company throughout the 
foregoing dispute is indicated in the following fact: 
The Company permitted — though somewhat reluctantly 
— its Parliamentary Counsel, Mr. E. H. Pember, to 
suggest to the Joint Select Committee on Electric 
Powers (Protective Clauses), 1893, tnat the protection 
given the National Telephone Company against electric 
tramway companies be subject to the following proviso : 
"Provided also that it shall be sufficient compliance 
with the requirements of this subsection if the [tram- 
way] promoters in the construction and maintenance 
of their said works, and in the working of their said 



142 THE TELEPHONE IN GREAT BRITAIN 

tramways, from time to time adopt the best known 
means of insulating their conductors and other electrical 
works, and of preventing injurious interference by in- 
duction or otherwise with such electric [telephone] 
circuits as aforesaid." 1 

The refusal of the Corporation of Glasgow to give 
the National Telephone Company underground way- 
leaves in this period beginning with 1891, was largely 
the result of the "campaign of education" carried on by 
three local statesmen, of whom Councillor Starke was 
the most prominent. Councillor Starke, as Chairman 
of the Special Committee on Telephone Service, induced 

Glasgow acts on not onl y his colleagues upon the Special 
an Anonymous Committee, but even the Corporation of 
Estimate Glasgow to accept his statement that an 

annoymous person had provided him with "reliable 
estimates in detail . . showing that for a capital of 
about $75 per user, the latest and best [telephone] sys- 
tem can be laid down in Glasgow within the municipal 
radius. On this basis a thoroughly efficient service 
could be given at an annual charge of about $25 per 
user, or possibly less." Mr. Councillor Starke never 
made known the name of the person who had prepared 
the "reliable estimates in detail." There is some doubt 
whether he ever submitted those estimates to his col- 

1 Glasgow Telephone Inquiry, 1897; q. 4529 to 4535, Mr. J. 
Colquhoun ; q. 4008 to 4011, Mr. S. Chisholm ; p. 221, Mr. E. T. 
Salvesen, of counsel to Glasgow Corporation ; and Report from the 
Joint Select Committee on Electric Powers (Protective Clauses), 
1893; p. 204, Mr. E. H. Pember; and q. 1316 to 1324, Mr. W. H. 
Winterbotham, Solicitor to National Telephone Company. 



THE GLASGOW EPISODE 143 

leagues on the Special Committee on Telephone Serv- 
ice. But there is no doubt that the Special Committee 
kept no record of the estimates, which never were put 
before the Corporation. 1 And yet, upon the strength 
of Mr. Starke's bare statement, the Corporation of 
Glasgow applied to the Postmaster General for a tele- 
phone license, and denied the National Telephone Com- 
pany all way-leaves in the streets. 

Before the Select Committee of 1892, Mr. J. S. 
Forbes, Chairman National Telephone Company, testi- 
fied as follows: "I should like at once to make an 
admission. I am prepared to concede at once that the 
National Telephone Company, which conducts about 
93 or 94 per cent, of the whole telephone business of 
the country, conducts a great deal of it monstrously 
badly, but it is not their fault, it is the fault of Parlia- 

„.■ . , „ , ment. I should like to follow that by 
National Tele- 
phone Com- saying that London, Liverpool and 

pany Admits many other large centers cannot be 

efficiently served without what is called 

a twin-wire or metallic circuit system." 2 Before that 

same Committee, Mr. W. Winterbotham, Solicitor to 

National Telephone Company, referred specifically to 

the conditions in Glasgow in support of his argument 

Glasgow Telephone Inquiry, 1897 ; Mr. J. Alexander, Bailie 
and Chairman of Telephone Committee, q. 3151 to 3170, and 3214 
to 3222; Mr. S. Chisholm, Bailie, q. 4070 to 4081; and p. 295, 
Councillor Starke's Memorandum. 

2 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 366. 



144 THE TELEPHONE IN GREAT BRITAIN 

that the Company must have underground way-leaves. 
He stated that over 3,000 wires radiated from the 
Central Exchange in Glasgow; that the Company de- 
sired to run those wires underground in large masses, 
spreading them overhead only when they began to 
branch off to the several subscribers' premises. 1 

In 1895, Mr. J. S. Forbes, Chairman National Tele- 
phone Company, testified as follows before the Select 
Committee on the Telephone Service : "We cannot 
carry out the works [i.e., conversion to metallic cir- 
cuit] without the concurrence of the authorities in a 
place like Glasgow, and I venture to suggest to the 
Committee (in fact, I pledge the National Telephone 
Company) that we are ready at all costs to give 
Glasgow the best service that can be got, a metallic 
circuit, if we can be assured of the concurrence of the 
authorities to enable us to do what must be done to 
give it," 2 namely, to go underground. 

The difficulties under which the National Telephone 
Company labored in Glasgow because of the lack of 
underground way-leaves, were further aggravated by 
the following incident : "When the trunk wire agree- 
ment was signed in 1896, with the exception of the 
South of England, the Government was not prepared 
to take over the working of the trunk lines, and a tem- 

1 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 418 to 422. 

2 Report from the Select Committee on the Telephone Service, 
1895 ; q. 4282. 



THE GLASGOW EPISODE 145 v 

porary arrangement had to be made, by which the Com- 
pany were to work them for a considerable time, but in 

the course of the same year the Govern- 

A Generous Act , .< , . £ ,/ 

ment took over the working of the 

whole of them and then they were in this dilemma, that 
they had not trained operators to work them. I [Mr. 
Game] was asked by the Post Office to consent to a 
large number of our best and most skilled operators 
being transferred to them, and in the case of Glasgow, 
24 of the best operators 1 in the Royal Exchange Build- 
ing were transferred to the Post Office building. I am 
bound to say that it did have a serious effect on the 
local service to withdraw 24. of the most skilled opera- 
tors. That was a somewhat serious demand, and there 
has been a difficulty in filling their places. The question 
was, which of the two was to suffer, the trunk service 
or the local service, and strong pressure was brought 
to bear on me to consent to the transfer of these 
operators, and I did so." 2 

On February 26, 1896, the General Manager of the 
National Telephone Company applied to the Corpora- 
tion of Glasgow for underground way-leaves. He 
wrote: "As regards the interference with the streets, 
the Company has no desire to obtain any rights therein 
adverse to the Corporation, nor is it material to the 

1 In October, 1807, there were 111 operators in the Royal Ex- 
change. Glasgow Telephone Inquiry, 1897 ; q. 6766, Miss Macfar- 
lane, chief operator. 

2 Glasgow Telephone Inquiry, 1897; q. 7506, Mr. W. E. L. Gaine, 
General Manager National Telephone Company. 

10 



146 THE TELEPHONE IN GREAT BRITAIN 

Company what method of procedure is adopted for 

getting the work done. The necessary pipes in the 

streets can, if thought expedient, be put down by the 

. n ■ Corporation, and leased to the Company 

Company again . 

Refused Way- upon reasonable terms, to be agreed 
leaves upon, or they can be put down by the 

Corporation by its own workmen or through a con- 
tractor at the expense of the Company, or they can 
be put down by the Company under the supervision of 
the Corporation." In due time he was informed that 
his letter had been handed to the Clerk of the Police 
Department, that Department having control of the 
streets. Not having heard anything further, the 
General Manager of the National Telephone Company 
on April 29th inquired what had become of his applica- 
tion. On the following day he was informed that the 
Committee having charge of the streets "had not yet 
formed any resolution on the subject. " On June 18, 
the General Manager again inquired whether the Com- 
mittee had yet come to a decision. On the following 
day the Committee "resolved to let the matter lie on the 
table." 

On January 15, 1897, a deputation from the Na- 
tional Telephone Company waited upon the Statute 
Labor Committee of the Corporation of Glasgow. Mr. 
W. A. Smith, a Director of the Company, stated "that 
owing to the enormous increase of subscribers, the old 
system of overhead wires had become unwieldy, and, 
with the best will in the world, it was now impossible 



THE GLASGOW EPISODE 147 

to give their vast mass of subscribers an equally good 
service overhead as was possible when the subscribers 
were fewer ; and that, in order to reap the full benefit 
of the great expenditure on trunk lines, both by the 
Company and (since the acquisition by the Post Office) 
by the Government, it had become absolutely necessary 
to have underground way-leave facilities. . . . The Com- 
pany were ready and willing to pay a reasonable rental 
to the Corporation for the facilities they accorded ; they 
were willing to pay it either in the form of a lump sum, 
or of a reasonable charge per subscriber ; and being a 
Company established not for philanthropic but for busi- 
ness purposes, they were quite sure that the Corpora- 
tion would not make anything more than a reasonable 
business charge, which, as before stated, the Company 
were ready and willing to pay. ... In conclusion he 
wished to emphasize the fact that the Company did not 
wish the Corporation, in any sense of the word, to grant 
what may be called a monopoly. The Corporation would 
retain full rights to give other underground way- 
leaves ; and, further, as an evidence of reasonable trust 
in the business judgment of the Corporation, the Com- 
pany would be willing to place themselves so far in the 
hands of the Corporation that at any future time the 
Corporation, on giving due notice, and after hearing 
the Company, might pass a special resolution to rescind 
such underground way-leaves ; but, of course, it must 
be pointed out that the expenditure of a large sum, 
amounting to probably $625,000, could not possibly be 



148 THE TELEPHONE IN GREAT BRITAIN 

made unless on some reasonable understanding that 
such an option would not be exercised in any undue 
or arbitrary manner. Should the permission be granted, 
the Company would bind themselves to lay down the 
most perfect system of twin-wire communication that 
it is possible for science to devise; and, furthermore, 
that they had already so far anticipated the adoption 
of this system as to prepare their new switchboard, at 
a cost of $125,000, so that it could be adapted to the 
twin- wire system without loss of time." . . . 

Five weeks later, on February 23, 1897, the Clerk 
of the Police Department wrote the National Telephone 
Company this short note. "I have now to inform you 
that, after careful consideration, the Corporation 
Police Department have resolved that the request of the 
National Telephone Company for way-leave to put 
down underground wires in the streets of the city be 
refused." 1 

In September, 1897, or thereabout, the Lords Com- 
missioners of Her Majesty's Treasury appointed 
Commissioner Andrew Jameson, 2 Q. C, Sheriff of 
appointed to Perthshire, a Commissioner to inquire 

Inquire j nto ^ T e i e pn 0ne Exchange Service in 

Glasgow. The Corporation of Glasgow, since August, 
1893, had repeatedly applied to the Postmaster General 

1 Glasgow Telephone Inquiry, 1897, p. 252. 

3 Who's Who, 1906, Ardwall, Lord, Andrew Jameson; Senator 
of College of Justice in Scotland since 1905 ; Sheriff of Roxburgh, 
Berwick and Selkirk, 1886 to 1890; Sheriff of Ross, Cromarty and 
Sutherland, 1890-91 ; Sheriff of Perthshire 1891 to 1905. 



THE GLASGOW EPISODE 149 

for a telephone license for the area of Glasgow, 
alleging that the existing service was inefficient, inade- 
quate and unreasonably dear. 

The first question submitted to the Commissioner 
was: "Is the service, so far as it goes, efficient?" 
Thereon the Commissioner reported : "I am of the 
opinion that the service is not efficient. This ineffi- 
ciency I believe to be mainly due either directly or in- 
directly to the want of a metallic [twin-wire] circuit, 
but a very considerable proportion out of the enormous 
Service not mass of the complaints which are proved 

Efficient to have been made from time to time to 

the Telephone Company are not referable to that cause 
alone, and might have been, in my opinion, to a con- 
siderable extent remedied by more thorough supervision 
in the Central and Junction Switch Rooms, and by 
more care being taken in leaving spaces between outside 
wires, regarding which it was from time to time 
brought to notice of the Company's officials, that they 
were in contact, and by again taking other similar pre- 
cautionary measures. . . . Again, the contact of certain 
wires with other wires is apparently sometimes 
remedied after complaint, but with so little thorough- 
ness, that the same contact takes place soon after, some- 
times without any apparent cause, sometimes, it is said, 
owing to the change of weather from dry to wet, or 
the occurrence of a high wind. Of course in consider- 
ing the evidence . . . several things require to be kept in 
mind: — The complaints as to buzzing and rasping 



150 THE TELEPHONE IN GREAT BRITAIN 

noises preventing the proper use of the telephone; in- 
distinctness in hearing or making oneself heard ; over- 
hearing voices and conversations from other wires; 
cessation of communication with the exchange, owing 
to contact with another wire or from leakages caused 
by storm and similar defects, is probably all more or 
less due to and inseparable from a single wire overhead 
system with an earth circuit, especially in a city such 
as Glasgow, which, as admitted by the witnesses on 
both sides, is in circumstances unfavorable for the work- 
ing of such a system. Among these circumstances may 
be mentioned the prevalence of rain and fogs and the 
quantity of finely divided particles of carbon in the 
shape of soot and smoke with which its atmosphere is 
laden in time of foggy or wet weather. 

"With regard to the complaints, to the effect that 
subscribers are frequently unable to get connection with 
some other subscribers with whom they wish to com- 
municate, owing to the wire being rightly or wrongly 
said to be engaged, I think it is impossible to attach 
much importance to these complaints. It is plain from 
the evidence, that certain men of business .... have so 
many persons who wish to communicate with them . . . 
that it may be quite impossible for some individual 
to obtain connection .... without waiting for a con- 
siderable time, or to obtain connection at all. . . Further, 
it is proved that subscribers very frequently fail to 
ring off, as it is called, after finishing a conversation 
with another subscriber, with the result that that other 



THE GLASGOW EPISODE 151 

subscriber's wire, quite unknown to him, remains, so 
far as the operators in the switch-room are concerned, 
engaged. . . . With regard to the complaint that com- 
munication has been cut off before a conversation was 
finished, as far as I can make out that has chiefly 
happened where a subscriber has been in connection 
with one of the Post Office trunk lines, on which only 
three minutes of conversation, or six minutes of an 
extended conversation, is allowed, and where the con- 
nection is cut on the expiry of these periods. The 
only other causes of premature disconnection that sug- 
gest themselves to me from the evidence are where an 
operator, supposing from the length of a conversation 
that it must be finished, connects another subscriber 
with a wire that is really engaged, or where during 
time of wind one wire is blown against another, and 
the electrical current is diverted by the contact. . . . The 
Telephone Company also draw attention to the proved 
facts that subscribers frequently make it impossible 
for the operator properly to attend to her business by 
bawling along the call wire at the same time with other 
subscribers, and using the call wire for abusing the 
operators, and frequently using very violent and brutal 
language to them, so much so that at times they drive 
them into hysterics. Then, again, there seems little 
doubt that the instruments are frequently ill-used by 
the subscribers. . . , On the whole matter my opinion 
is that while the inefficiency of the present system is 
chiefly due to the overhead single wire arrangement, 



152 THE TELEPHONE IN GREAT BRITAIN 

yet the efficiency of the system might have been con- 
siderably improved by more thorough supervision in 
the various switch-rooms, including more prompt at- 
tention to complaints against the operators, and by 
the exercise of greater care and thoroughness in 
remedying defects in the arrangement of the outside 
wires." 

The second question was: "Is the service adequate? 
That is to say, are all the inhabitants who desire to 
join the Exchange systems afforded facilities for doing 
so, without undue conditions as to way-leaves or other- 
wise, and is there a sufficient number of call offices to 
meet the reasonable requirements of the public?" The 
Commissioner reported thereon : "No witness was 
Service is adduced who complained of being de- 

Adequate terred from joining the Exchange 

system by any condition as to way-leave or otherwise, 
but some of the witnesses for the Corporation expressed 
their opinions, for what they were worth, upon two of 
the conditions 1 which the company are accustomed to 
impose upon the subscribers, the first being in these 
terms : — 'The lessee will give to the company every 
facility in his power in the way of poles, attachments, 
etc., for running his own wire, and also those of other 
subscribers to the company's system, whether exchange 
or private, and will permit the company and its servants 
at all reasonable times to have free access to the lessee's 

1 The Glasgow Corporation in its official documents sometimes 
referred to these conditions as "blackmail." Compare Glasgow 
Telephone Inquiry, 1897 ; p. 296. 



THE GLASGOW EPISODE 153 

premises for the purpose of erecting, fixing, examining, 
repairing, or removing the said wires, apparatus, poles, 
attachments, etc' This condition is rather amplified 
in the new form. The second is the condition that sub- 
scribers should take a five years' lease of their instru- 
ment. In the absence of any evidence that these con- 
ditions have been found to work unfairly in practice, 
or have tended to prevent inhabitants from joining the 
Exchange system, I am not disposed to attach much 
importance to these opinions. I do not see anything 
unfair in a person who uses the telephone himself being 
requested to give facilities for extending its use to 
others ; while with regard to the five years' condition, 
it seems not unreasonable that the Company should 
decline to be at the expense of putting up a wire in con- 
nection with their Exchange, without some security 
that the expense will not be practically thrown away 
by the subscriber leaving his premises at the end of a 
short period. As to the number of call offices, .... my 
own opinion is that the number of call offices is sufficient 
to meet the reasonable requirements of the public." 

The third question was : "Is the price charged for 
the service reasonable?" Hereon the Commissioner 
reported : "It appears to me that these rates are not 
unreasonable, except where they come to be applied to 
some of the outlying districts, .... in which cases I 
think they ought to be reduced. But speaking gener- 
ally, I may notice that the rate is what is called a $50 
rate for places of business within half a mile of the 



154 THE TELEPHONE IN GREAT BRITAIN 

Charges not Exchange, which was the Post Office 

Unreasonable Telephone Rate for distances between 
a quarter and half a mile up to October of the present 
year, when a reduction has taken place to $40 ; but in 
comparing the Telephone Company's charges with the 
Post Office, it has to be remembered that the Telephone 
Company have to pay a royalty of 10 per cent, on their 
gross receipts, and at the present time that represents 
an annual charge of almost $500,000 a year. Besides, 
the Company's license expires on December 31, 191 1, 
.... but the example which all the Corporation wit- 
nesses fall back on as the standard for Glasgow is 
Stockholm, and they assume that Stockholm is properly 
comparable with Glasgow. For my own part, I can 
hardly imagine two more dissimilar places in almost 
every conceivable respect. . . . But it was said by some 
of the Corporation witnesses that a $25 rate was sup- 
ported by the experience of the first Telephone Com- 
pany in Dundee, and of the Mutual Telephone Company 
in Manchester. . . . But when cross-examined ... it 
appears that his information was derived from Ex- 
Provost Moncur, who in his examination before the 
Select Committee in 1895 stated that if the original 
Dundee Company had gone on they would not have 
been able at the $27.50 rate, to have paid anything at 
all. While with regard to the Mutual Telephone Com- 
pany of Manchester, I think Mr. Forbes' evidence, 
taken along with that of Mr. Sinclair, who inspected 
the plant, and Mr. Anns, who was Liquidator of 



THE GLASGOW EPISODE 155 

the Mutual Company, shows that that Company was 
being financed in such a way as to have inevitably led 
to bankruptcy upon the $25 rate, and was never really in 
a position to pay the dividend. Specimens of the plant, 
chiefly plugs, wires and jacks, used by the Mutual 
Telephone Company, were produced at the Inquiry, and 
were of the cheapest and most flimsy description pos- 
sible, and not at all comparable to the plant used in 
Glasgow by the National Telephone Company." .... 

The fourth point referred to the Commissioner was : 
"If there is either inefficiency or inadequacy in the 

service, or if the price charged for the 
Earth-return . 

Circuit Main service is too high, you will endeavor 

Cause of to ascertain whether, and how far, this 

is due to the refusal of facilities on the 
part of the Municipal or other local authorities or the 
inhabitants. You will also consider how far such re- 
fusal is reasonable or justifiable on grounds of policy 
or otherwise." The Commissioner reported: "As 
stated in my observations on Question 1, I am of opin- 
ion that the main cause of the inefficiency of the present 
Telephone Exchange Service in Glasgow is that it is 
worked by means of an overhead single wire system, 
with an earth-return current, in a city where there is 
an enormous amount of concentration of wires to one 
point, 1 greater even than exists at any one point in 
London, and where, owing to climate and the system 

1 At this time 3,753 overhead wires radiated from the Central 
Exchange. 



L56 THE TELEPHONE IN GREAT BRITAIN 

of electric lighting in one of the underground railways, 
an overhead system is peculiarly liable to be rendered 
inefficient. Further, it appears that the Corporation 
are intending gradually to establish an electric trolley 
system by means of overhead wires, for the purpose of 
working their tramways. . . . The result of this would 
undoubtedly be greatly to increase the difficulties of 
the working of the .... present overhead [telephone] 
system, and, indeed, to render it unworkable altogether 
in the neighborhood of the Tramway electric wires. 
Of course, this might to some extent be obviated by the 
Company making an overhead twin-wire system, but 
I think it would be most unreasonable to require them 
to do so. In the first place, it would greatly increase 
the strain upon the standards and roofs to which the 
wires are fixed, and increase the risks from possible 
accidents from breaking of wires and cables, etc., in 
times of storm, and, of course, would be liable to 
the interruptions which attend the present system 
through alterations of buildings, fires, and similar 

causes Then, again, the construction of such a 

system would be enormously more expensive than the 
construction of an underground metallic circuit, and 
would not be nearly so efficient. The National Tele- 
phone Company resolved in February of last year to 
introduce the metallic underground circuit in Glasgow, 
and on February 25, 1896, addressed a letter to Sir 
James Warwick, Town Clerk, asking the assistance of 
the Corporation. Upon that a correspondence fol- 



THE GLASGOW EPISODE 157 

lowed, from which it appears that the Corporation of 
Glasgow and its Police Committee have been respon- 
sible for very unnecessary delay in the matter, and 
which closes with a letter of February 23, 1897, with 
the following terms : 'I have now to inform you that, 
after careful consideration, the Corporation Police De- 
partment have resolved that the request of the National 
Telephone Company for any way-leave to put down 
underground wires in the streets of the city be re- 
fused.' ' The Commissioner continues : "My opinion 
accordingly, is that the continued inefficiency of the 
present Telephone Exchange Service in Glasgow is in 
a great measure due to the refusal of facilities to the 
National Telephone Company by the Corporation of 
Glasgow for constructing an underground metallic cir- 
cuit system. I do not require at present to consider 
the action of some of the small Municipal authorities 
in the neighborhood of Glasgow, .... because their 
attitude seems at present to be that of waiting to see 
whether the Corporation of Glasgow will get a license 
and supply them with a telephone system at a $25 rate, 
in which case apparently they are prepared to give the 
Corporation way-leave under the streets of their re- 
spective burghs, and would refuse it to the National 
Refusal of Telephone Company .... In the mean- 

Way-leaves time, therefore, I propose to deal with 

Unreasonable the questIon w h e ther the refusal on the 
part of the Glasgow Corporation is reasonable or justi- 
fiable on grounds of policy or otherwise. As it is im- 



158 THE TELEPHONE IN GREAT BRITAIN 

portant to see precisely what the Members of the Cor- 
poration who were put forward as supporting its views 
say on this matter, I shall refer to them in some detail. 
Bailie Chisholm, after stating that the water, gas, elec- 
tric lighting and tramways were all managed in Glas- 
gow by the Corporation, and that these necessitate the 
use of the streets by the Corporation, says that he thinks 
it highly inexpedient for a private company to have 
the use of the streets. Further on this passage occurs 
in his evidence : 'In coming to that conclusion, is it 
not the fact that you had in view that you were your- 
selves making an application for a [telephone] license, 
and therefore would not grant the Telephone Com- 
pany's application?' 'We had that along with a great 
many others, and that contributed with these other 
factors to lead us to the conclusion to which we came.' 
'You had in view the fact that you were applying for 
a license?' 'Yes.' Then he says: 'We object, first of 
all, as I said, to increasing the number of underground 
pipes and conduits, and especially to a company work- 
ing solely for profit; and we object also because when 
once this company gets in there will be no getting them 
out, even if we wish it.' But when he is questioned 
as to whether any serious inconvenience would be 
caused, his objections come to very little. Further on 
it^appears that one of his main grounds for objecting 
to give the Telephone Company the use of the streets 
is the high rates charged by the Telephone Company. 
He is asked : 'You were wanting to make an explana- 



THE GLASGOW EPISODE 159 

tion?' 'If the company comes to us and asks for fa- 
cilities which will enable them to do their work cheaper, 
and not give us the telephone any cheaper, then we 
have no inducement to consider their proposal for a 
moment.' Then Councillor John Macfarlane, who is 
Chairman of the Statute Labor Committee, who has 
charge of the streets and roadways of the City, says 
that he thinks : 'it would be unfortunate for any other 
authority to have liberty in a large Corporation such 
as this to go into the streets at all.' He says, 'I think 
there should be only one leading authority in an im- 
mense municipality like Glasgow. There would be 
sure to be friction.' 'Even if the control of the streets 
were left entirely in the hands of the Corporation, 
would that satisfy you?' 'No.' 'Why?' 'We have 
a strong feeling that no company earning a dividend 
should have power to go through our streets. We feel 
that we would be parties to earning them a larger divi- 
dend, and as a public authority we consider we have no 
right to do so.' .... He admits that the annoyance of 
opening the streets, as far as concerned street passen- 
gers, would be the same if the Corporation laid an 
underground telephone system as if it was done by the 
company, and. . . .he practically gives up the objection 
to the inconvenience of taking up the streets, and falls 
back upon his objection of giving the Glasgow streets 
to a dividend-earning company. Going back to his 
cross-examination, he is asked to tell shortly the reasons 
why the Statute Labor Committee refused the request 



160 THE TELEPHONE IN GREAT BRITAIN 

.... and to this he answers : 'The main reason was 
that they would not allow a dividend-earning company 
to monopolize the streets,' and .... he says, 'I gave other 
reasons, and those were that this was a dividend-earn- 
ing company, and we had no right to grant our streets 
to such a company for the purpose of assisting them 
to earn a dividend;' and he explains that he had been 
advised in point of law that they had no power to do 
so. I may remark that if such advice was given it was 
in my opinion quite erroneous, especially if the Com- 
pany were to pay the Corporation a sum for way-leaves, 
which they are willing to do ... . The next important 
Member of the Town Council who is examined on this 
matter is Treasurer James Colquhoun, who .... bases 
his objection to giving the Telephone Company leave 
to go under the streets on the fact that they have not 
succeeded in getting Parliamentary sanction to doing 
so; but on Questions 4483 and 4484, he states his own 
views most distinctly in the following terms : 'Does 
your objection apply to all companies of a private na- 
ture existing for profit?' T have a strong conviction 
that wherever a business like the telephone business be- 
comes a matter of practical utility, and of great use to 
the public, and whenever a business of that kind re- 
quires to be carried on by means of using the public 
streets, and when these two considerations concur with 
the business becoming a practical monopoly, the con- 
duct of that business ought to be in the hands of the 
Municipality or the Government.' 'And these elements 



THE GLASGOW EPISODE 161 

are present in the Telephone Industry?' 'Yes. The 
business is one of manifest importance to the public, 
and it is of the nature of a monopoly, and it can only 
be carried on efficiently by use of the streets.' .... From 
his answer to Question 4498 it would seem that the 
question of the company's rates entered largely into 
view in refusing them the use of the streets. Question 
4498 is in these terms: Tn view of the information 
obtained from experts, did you cc sider that a suffi- 
cient ground for refusing them the\use of the streets? 
Did you think it right to allow a company that would 
charge $50 per telephone the use of the streets, when 
you were informed that a better service could be sup- 
plied for less than half the money?' 'We would have 
been lacking in our duty to the citizens if we had given 
them the use of our streets, in view of a statement of 
that kind, and in view of the fact that a proper tele- 
phone service could be given for a much less sum.' "... 
Upon all of the foregoing evidence the verdict of the 
Commissioner was : "It humbly appears to me that this 
Corporation's evidence is self-condemned." 
Evidence Self- The Commissioner adds : "So far as 

condemned the j nconven i ence to t h e public using 

the streets is concerned, the inconvenience of the cor- 
poration laying an underground system for themselves, 
and the National Telephone Company laying an under- 
ground system under the supervision and control of 
the corporation would be identically the same position. 

As to repairs, it is practically admitted that these can 
11 



162 THE TELEPHONE IN GREAT BRITAIN 

be done by means of the manholes, .... without any re- 
lifting of the street at all. Beyond this, the objections 

Sentimental seem to me to be P urel y of a sentimental 

and Fanciful and fanciful kind, and the experiences 
Objections of the Corporation of Glasgow with 

the Central Railway have no bearing upon the present 
question ; the operation of constructing a tunnel suffi- 
cient to contain a double line of rails under the streets 
of Glasgow is a very different one from cutting and 
filling up a track some three feet deep by three feet 
broad, with manholes at intervals for repairs; and if 
the latter trifling operation were carried on by the Cor- 
poration employees or under supervision of the Cor- 
poration's engineers, I entirely fail to see what cause 
of complaints the Corporation can possibly have. The 
objection to giving the leave to the Telephone Company, 
because it is a dividend-earning company, appears to 
me quite absurd, when it is considered that the opera- 
tion proposed is really for the benefit of the public, .... 
and, further, that the company are willing to pay the 
Corporation a sum in respect of the leave to go under 
their streets. I may here remark that the way in which 
Nature of some of the Corporations speak of the 

Public's Property streets as the 'patrimony' of the City 
m the Streets f Qi aS g OW [ s absurd, whether regarded 
from the point of view of law, or of fact. The solum, 
or the property in the land traversed by the streets, as 
a rule, belongs to the proprietors on each side, and the 
streets are only vested in the Corporation by Act of 



THE GLASGOW EPISODE 163 

Parliament for certain public purposes, the main one 
being the use of the surface for public traffic, and the 
subsidiary purposes being such as the construction of 
sewers and the laying of gas and water pipes. I may 
here quote the opinion of the late Lord President In- 
glis, one of the greatest lawyers and judges that ever 
adorned the judicial bench, in the case of the Glasgow 
Coal Exchange, Limited, and Glasgow City and Dis- 
trict Railway Company, 10 Rettie's Session Cases, p. 
1 29 1 : 'It was maintained on the part of the Railway 
Company that the owners of the houses in question 
here were not, in point of fact, owners of this subsoil 
at all, but I give no effect to that argument. I think 
the magistrates, under the Police Act, have right to the 
surface for all purposes of the statute, and that they 
have also rights to the subsoil immediately below the 
surface to such a depth as is necessary for the purpose 
of constructing sewers, and laying gas and water pipes, 
and that everything beyond that remains the property 
of the owners under their infeftments.\ . . .There seems 
no good practical reason why the Corporation of 
Glasgow should not give facilities to the Telephone 
Company similar to those which these other great Cor- 
porations have given. It is certainly not proved that 
the streets of Glasgow have any special sanctity which 
requires to be observed in a question of this kind. As 
to the alleged policy and traditions of Glasgow, I do 
not think there is much to be said. It is only of com- 
paratively recent years that the gas, water, and tram- 



164 THE TELEPHONE IN GREAT BRITAIN 

way undertakings have been taken over by the Munici- 
Grave Criticism pality, or that the streets have been 
of Inconsistency vested in them, and all the some- 
what high-flown talk of the Corporation witnesses 
about the necessity of retaining an absolutely exclusive 
interest in their streets is subject to the very grave 
criticism on the ground of inconsistency, 1 because the 
Corporation itself, in applying for the extended license, 
to which I shall hereafter have occasion to refer, pro- 
poses to interfere with the streets of the Royal Burgh 
of Rutherglen, which is an older Burgh than Glasgow, 
and with the streets of the independent, and sometimes 
hostile, Burghs of Partick, Govan, and others, in pre- 
cisely the same way in which they object to their streets 
being interfered with by the National Telephone Com- 
pany. My inference from the whole evidence is that 
the true cause of the refusal of the Corporation of 
Glasgow to allow the National Telephone Company a 
way-leave under the streets is that they are resolved, 
if possible, to establish a telephone system of their 
own, by means of which they believe that they would 

be able to extinguish the National Tele- 
Corporahon 
mainly Re- phone Company altogether so far as 

sponsible for Glasgow is concerned, and supply a 
better and cheaper service to the inhabi- 
tants of the present Glasgow District Telephone area. . . 
My answer to this question, accordingly, is that the 
continued inefficiency of the Telephone service in Glas- 

1 Compare H. R. Meyer : Municipal Ownership in Great Britain, 
P- 95- 



THE GLASGOW EPISODE 165 

gow is, for the most part, due to the refusal of the 
Corporation of Glasgow to allow the National Tele- 
phone Company to construct a metallic circuit under- 
ground system underneath the streets of the city, and 
I am further of opinion that such a refusal is not rea- 
sonable or justifiable, on grounds of policy or other- 
wise, unless it be thought that the Corporation are justi- 
fied in their refusal, because they desire to establish a 
telephone system of their own, and to place the National 
Telephone Company at an enormous disadvantage in 
competing with them for the patronage of the public." 
The fifth and last question was : "Whether it is ex- 
pedient to grant the Corporation a license to establish 

Commissioner and carr y on a Telephone Exchange of 
disbelieves in its own, either immediately or in the 
Competition future ? „ Uponthis point the Commis- 

sioner reported :".... The Corporation of Glasgow pro- 
pose to establish a Telephone service .... and they have 
induced the Municipal Authorities of the Burghs of 
Rutherglen, Partick, Kinning Park, Pollokshaws, Go- 
van, Kirkintilloch and Clyde Bank, to concur with them 
in their proposed undertaking, by promising the in- 
habitants of these Burghs a metallic circuit Telephone 
system at a $26.25 rate > irrespective of distance from 
Glasgow. Here I think the position of the National 
Telephone Company is entitled to consideration. The 
Corporation put forward their proposal as leading to 
the establishment of a competing service with that 
presently afforded by the National Telephone Company. 



166 THE TELEPHONE IN GREAT BRITAIN 

But it is evident what the Corporation wish and ex- 
pect to do is to extinguish the National Telephone Com- 
pany altogether so far as the Glasgow district is con- 
cerned. It is idle to speak of competition when they 
propose to supply a metallic circuit underground sys- 
tem, and at the same time to prevent the National Tele- 
phone Company (who wish to do so) from supplying 
the same. It appears to me that this can have only 
one result, and it will be for the Postmaster General 
to consider whether it would, in these circumstances, 
be fair to the Company, who have been licensees of the 
Post Office for many years, and have laid out large 
sums in supplying Glasgow with a telephone service, 
to give a license to another body, who propose to com- 
pete with the present licensee on unequal terms. 1 The 
result of such a competition would ultimately be not to 
keep up two competing services, but to substitute one 
monopoly for another. 

"If, on the other hand, the Corporation, as a condi- 
tion of obtaining a license, were by any chance to allow 
the National Telephone Company to lay an under- 
ground metallic circuit, or if that Company were to 
obtain Parliamentary powers to do so, the result would 
be that the citizens of Glasgow would be annoyed by 
having the streets lifted twice instead of once, .... and 
the Government, if they resolved at the end of 191 1 to 



1 Ultimately the City of Glasgow established a municipal tele- 
phone plant, put its own wires underground, and refused to permit 
the National Telephone Company to put its wires underground. 



THE GLASGOW EPISODE 167 

take over the Telephone Systems in Glasgow, would 
have more to pay than if only one system existed. In 
the meantime there would be two competing systems, 
and most persons with large businesses would require 
to be on both systems, so that no saving would be 
effected, even if both systems were worked at a $25 
rate of user. On the whole, I think it would require 
much stronger reasons than at present exist to warrant 
the laying down of two competing underground metal- 
lic circuit telephone systems in the Glasgow District, 
and the infliction on the community of the certain in- 
convenience that two systems involve 

"In these circumstances, and apart from the diffi- 
culty of the situation, which I shall hereafter advert to, 
I should have been prepared to state as my opinion that 
it is not expedient that the Corporation of Glasgow 
should obtain a license to carry on the business of tele- 
phony within the present Glasgow District area, and 
that for these reasons : . . . . On general grounds of 
public convenience it is inexpedient to have two tele- 
phone systems or two telephonic authorities within the 
same area, as this leads to the necessity of members 
of the public subscribing to both systems, or suffering 
from delay in the transshipment of messages from one 
system to the other. Because the establishment of a 
second telephone system may render the acquisition of 
the telephones in Glasgow by the Government at the 
end of 191 1 more difficult and more expensive. Be- 
cause up to this time the Corporation have not pro- 



168 THE TELEPHONE IN GREAT BRITAIN 

duced satisfactory evidence that they could successfully 
finance and work the proposed system without the risk 
of putting a new and serious burden on the ratepayers 
of Glasgow. 

"In my opinion, the reasonable solution of the matter 
would be that the Corporation should grant the Na- 
tional Telephone Company the same facilities .... as 
The Reasonable the large English Municipalities have 
Solution already done, and under similar safe- 

guards. But the Corporation of Glasgow at present 
state that they will never consent to the National Tele- 
phone Company being allowed to lay an underground 
system in Glasgow, and it is clear that unless this is 
done the telephone service in Glasgow will continue to 
be inefficient, which is a state of matters that ought not 
to be allowed to continue. The question therefore 
arises whether, accepting the present situation, it would 
not be expedient, notwithstanding all the objections I 
have pointed out, that the license they now ask should 
be granted to the Corporation, throwing on them the 
whole responsibility of their proposed undertaking. 

"One way out of the difficulty would be for the Post 
Office to establish a Telephone Exchange in Glasgow 
themselves, with an underground metallic circuit sys- 
tem of wires. To do so would seem to be authorized 
by clause 18 of the agreement between the Postmaster 
General and the National Telephone Company, dated 
March 25, 1896. 

"If this course does not recommend itself to Her 



THE GLASGOW EPISODE 169 

Majesty's Government, then in the interests of the pub- 
The Actual nc wno use tne telephone in Glasgow 

Solution and district, I am of opinion that it 

would be expedient to grant to the Glasgow Corpora- 
tion the license they have now requested, provided 
that they are able to satisfy the Postmaster General that 
financially their scheme is sound, and that they have 
the means of carrying it out." 1 

The verdict of the Commissioner, a man trained to 
sift and weigh evidence, was overwhelmingly in favor 
The Manufacture of the National Telephone Company. 
of Public Opinion Nevertheless the Glasgow episode seri- 
ously damaged the reputation of the Company, not 
only with the public at large, but also with numerous 
Members of the House of Commons. The public at 
large practically does not read Blue Books at all; and 
many Members of the House of Commons shirk that 
duty as much as possible. The men in public life in 
the United Kingdom not infrequently rely upon those 
facts for security in making statements that they could 
not justify. Thus the Lord Provost of Glasgow, Mr. 
S. Chisholm, before a Select Committee of 1900, made 
the following statement : "We did everything we could 
to come to terms with them [the National Telephone 
Company]. We asked them to endeavor to give us a 
better and more efficient service, and they said they 
could not do it unless at greatly increased price, be- 

i&asgozv Telephone Inquiry, 1897. 



170 THE TELEPHONE IN GREAT BRITAIN 

cause it would require a large outlay of capital, which 
must be returned to them, and they could hold out no 
prospect of a reduction of the price, but rather an in- 
crease, if this service were to be more efficient." 1 In 
October, 1897, Mr. Chisholm, Senior Magistrate of 
the City and a Member of the Telephone Committee, 
had appeared before Mr. Jameson, Commissioner, 
and had been asked: "They [the National Telephone 
Company] were not proposing to raise the [subscrip- 
tion] rates?" He had answered : "They were not say- 
ing [i. e., proposing] that." At the same time, Mr. 
E. T. Salvesen, Counsel for the Corporation of Glas- 
gow, in the cross-examination of his witnesses, as well 
as in the argument before the Commissioner, always 
proceeded on the assumption that the National Tele- 
phone Company had declined to promise to reduce its 
tariff, and never on the assumption that it had inti- 
mated that it might raise it. 2 Again, in 1893, Mr. S. 
Chisholm had been a member of the Glasgow Special 
Committee on Telephone Service, which had drawn 
up a Memorandum containing the following statement : 
"In order to give a cheap and efficient service two con- 
ditions must be fulfilled — first, a complete twin-wire 
system, combined with the most modern appliances, 
must be provided, .... Moreover, no adequate double- 
wire service can be established without going under- 

1 Report from the Joint Select Committee on Municipal Trading, 
1900; q. 2865 et passim. 

3 Glasgow Telephone Inquiry, 1897; q. 4272.* Mr. S. Chisholm; 
and q. 4374, and p. 226, Mr. E. T. Salvesen. 



THE GLASGOW EPISODE 171 

ground. The National Telephone Company is striv- 
ing to obtain powers to do so, but it may be assumed 
that the Corporation will never consent to any Com- 
pany having the right to open up the streets and lay 
conduits/' 1 The memorandum had made no mention 
of any proposal of the National Telephone Company 
to raise its tariff. At that time the Company had the 
underground metallic circuit system in Newcastle and 
Hull, and was introducing the overhead metallic cir- 
cuit in Metropolitan London. In all three cases the 
Company was charging its normal tariff. 2 Finally in 
1900, when Mr. Chisholm, Lord Provost of Glasgow, 
made the statement under discussion, the Company had 
established the metallic circuit underground service in 
a large number of cities, and in no case had it raised 
its tariff. 

In March, 1898, Mr. J. S. Forbes, Chairman Na- 
tional Telephone Company, wrote: "The Glasgow in- 
quiry lasted eleven days. The cost to the company 
was over $22,500, to the corporation 
m7y over $15,000, and to a combination of 
traders and would-be promoters of a competing system 
nobody knows how much, but as they occupied a large 
portion of the time it must have been very consider- 
able." 3 

1 Glasgow Telephone Inquiry, 1897; p. 295: Memorandum for 
the Telephone Committee, May 10, 1893. 

2 Report from the Joint Committee on Electric Powers (Protec- 
tive Clauses), 1893 ; q. 208 to 215, Mr. W. E. L. Gaine, General 
Manager National Telephone Company. 

'Report from the Select Committee on Telephones, 1898; p. 515. 



172 THE TELEPHONE IN GREAT BRITAIN 

In 1896, or thereabout, under the Agreement made 
with the National Telephone Company upon the occa- 
Gl , sion of the so-called purchase of the 

structs Post- trunk line wires, the Postmaster Gen- 
master General eral applied to the Corporation of Glas^ 

gow for permission to open the streets for the purpose 
of laying underground wires between the several ex- 
changes of the Company, as well as between the ex- 
changes of the Company and the Post Office Trunk 
Line Exchange. Such underground wires were essen- 
tial for the attainment of the maximum distinctness 
of speech over the Post Office trunk lines. The Cor- 
poration replied that it would give its consent only on 
the understanding that the wires in question were not 
to be devoted to the purposes of the National Tele- 
phone Company. The Postmaster General carried the 
case to the Railway and Canal Commissioners, who 
held that the Corporation had no right to make its con- 
sent conditional upon the National Telephone Company 
not using the underground wires. 1 Lord Stourn- 
mouth-Darling, the Scottish Member of the Commis- 
sion, presided. 

Before the controversy had been ended by the Rail- 
way and Canal Commissioners, the Corporation had 
denied the Post Office permission to open the streets 
for the purpose of repairing its telegraph wires and 
laying additional telegraph wires in its pipes. At one 
time it had almost threatened violence to the Post Office 

1 The Electrician; July 14 and 21, 1899. 



THE GLASGOW EPISODE 173 

workmen engaged upon the work in question. The 
quarrel delayed for several years the completion of 
several Post Office trunk line circuits. 1 

Edinburgh adopted the same policy of obstruction 
toward the Postmaster General. It instructed the 

Edinburgh Town Clerk t0 Wdte aS f0ll0WS t0 the 

obstructs Post- Postmaster General. "As you are 
master General aware> j t has been the policy of this 

corporation cordially to give the Post Office facilities 
for their telegraph wires, but the situation and termini 
of the routes indicated on the map suggest that the 
wires may be intended for the use of the Telephone 
Company as part of their undertaking, which is a pure- 
ly commercial concern. The Corporation object to give 
any rights in their streets to private or commercial un- 
dertakings, whether applied for directly or through the 

medium of the Post Office Kindly state whether 

the wires would be exclusively the property of the 
Government and either used by themselves or available 
to the public/' 2 

The length to which the people of Edinburgh were 

willing to go in the gratification of their dislike of the 

National Telephone Company, is indi- 

The Public cated in the statement ma( je in July, 

C onvemence 

1899, by Mr. F. Begg, M. P., that un- 
til quite recently he had held in his possession a letter 

1 Report from the Select Committee on Telephones, 1898; q. 6947, 
6948 and 6988 to 7003, Sir Robert Hunter, Solicitor to Post Office. 

2 Report from the Select Committee on Telephones, 1898; p. 517. 



174 THE TELEPHONE IN GREAT BRITAIN 

in which the Town Clerk of Edinburgh refused to per- 
mit the fire brigade to be joined on to the telephone, 
even though the National Telephone Company offered 
free service. 1 

The story of Glasgow's policy toward the National 
Telephone is so incredible that he who undertakes to 
tell that story must deem it fortunate 
ummary ^ at ^ e can CO nfine himself to quoting 

from a public document written by the present Senator 
of the College of Justice in Scotland. And yet, in- 
credible as that story is, it has its parallel in Glasgow's 
recent electric light and street railway policies. 2 In 
1890, the Corporation excluded private enterprise from 
supplying the electric light in Glasgow, and for a num- 
ber of years thereafter it "smothered" its municipal 
electric light plant for the purpose of protecting its 
municipal gas plant. Again, in 1893, tne Corporation 
assumed the operation of the street railways which it 
had owned since 1870, or thereabout. Not until Janu- 
ary, 1899, did the Corporation resolve to convert its 
horse street railways to electric street railways. To 
this day the Corporation has failed to supply Glasgow 
with a street railway system that would relieve the 
horrible congestion that has resulted from the past lack 
of transportation facilities. As late as 1901, there 
were in Glasgow some 91,000 "overcrowded" persons 
living in the condition of 3 to 12 persons in one room, 

1 Hansard's Parliamentary Debates; July 25, 1899. 
3 H. R. Meyer : Municipal Ownership in Great Britain* 



THE GLASGOW EPISODE 175 

and some 194,000 "overcrowded" persons living in the 
condition of 5 to 12 persons in two rooms. Not only 
has the Corporation of Glasgow failed itself to provide 
adequate street railway facilities ; it also has uniformly 
refused to permit either the Board of Trade or the 
Light Railway Commissioners to grant charters to 
private companies that stood ready to supplement Glas- 
gow's inadequate street railway service. 

In closing, attention should be drawn once more to 
Mr. Commissioner Jameson's comments upon the na- 
ture of the public's property in the streets. They were 
that the streets were vested in the municipalities by 
Act of Parliament only for certain public purposes, the 
main one being the use of the surface for public traffic, 
and the subsidiary purposes being such as the construc- 
tion of sewers and the laying of gas and water pipes. 
The implication of Mr. Commissioner Jameson's com- 
ments, as well as of Mr. Justice Wright's comments — 
quoted in the preceding chapter — was that the streets 
had not been vested in the municipalities in order that 
those bodies should be in a position to enforce political 
theories as to whether "dividend seeking" companies 
should be allowed to use the streets at all, or, on what 
terms they should be allowed to use them. 

It would conduce greatly to clear thinking upon the 
question of the special taxation of municipal public 
service corporations, as well as upon the question of 
the regulation "on principle ,, of the profits to be made 
by such corporations, if the public could be made to re- 



176 THE TELEPHONE IN GREAT BRITAIN 

member that those questions have nothing to do with 
the fact that the municipal public service corporations 
use the streets. The public authority has the power 
to regulate the profits made in any industry, as well as 
the power to prescribe the price at which any service 
shall be rendered, or any commodity shall be sold. 
Whether, in any particular instance, public necessity 
and convenience require the exercise of that power, is 
a question of fact dependent upon the circumstances of 
the case. To assert, without inquiry into the circum- 
stances of each individual case, but simply as a matter 
of general principle, that profits should be limited and 
charges should be regulated in those industries which 
must obtain a franchise to use the streets, is to advo- 
cate unequal taxation and class legislation. Practi- 
cally all statesmen assent to the abstract proposition that 
unequal taxation and class legislation are vicious; but 
in practice many of them forget that proposition. The 
experience of England and Scotland under departure 
from that proposition in the case of the so-called muni- 
cipal public service corporations, establishes once more 
the profound wisdom of the master mind that in the 
Wealth of Nations established the viciousness of un- 
equal taxation and class legislation. 



CHAPTER XII 

MR. R. W. HANBURY, FINANCIAL SECRETARY TO 
THE TREASURY, AND REPRESENTATIVE, IN THE 
HOUSE OF COMMONS, OF THE POSTMASTER 
GENERAL, THE DUKE OF NORFOLK, ATTACKS 
THE NATIONAL TELEPHONE COMPANY 

Mr. James Caldwell, M. P. for Lanark, makes a Motion 
asking the Government to abandon its past policy of refusing to 
grant telephone licenses to local authorities. The Motion is 
seconded by Mr. G. Boscawen, M. P. for Kent, Tunbridge, and 
Private Secretary to the Chancellor of the Exchequer, Sir 
Michael Hicks-Beach. Mr. R. W. Hanbury replies on behalf of 
the Government, offering to refer to a Select Committee the 
question of municipal telephone licenses. He prefers a series 
of charges which prove most damaging to the National Tele- 
phone Company, though they would not have passed muster 
with a well informed body of listeners or readers. Why Par- 
liament and the public were not well informed. 

At the close of the year 1897, there had been prac- 
tically no demand from Local Authorities for telephone 
licenses. 1 But when the year 1897 had closed, and the 
Post Office had not availed itself of its power to buy 

1 Report from the Select Committee on Telephones, 1898; p. 520, 
Mr. J. C. Lamb, Second Secretary to Post Office. Applications 
from Local Authorities for Telephone licenses : Glasgow, in August, 
1893 ; Ealing, in December, 1893 5 Dover, in February, 1896 ; the 
States of Guernsey, in June, 1896 ; and Huddersfield, in December, 
1895. Resolutions forwarded from Local Authorities to the Post- 
master General, in favor of granting telephone licenses to Local 
Authorities: Burnley, in December, 1897; twenty-four other Local 
Authorities in January to May, 1898. 
12 177 



178 THE TELEPHONE IN GREAT BRITAIN 

out the National Telephone Company, on arbitration 
terms, a number of Local Authorities began to demand 
that the Post Office abandon its past policy of refusing 
to give a license to a Local Authority unless it should 
prove possible to show that the National Telephone 
Company was failing in its duties in the area of the 
Local Authority concerned. 

On April i, 1898, Mr. James Caldwell, M. P. for 
Lanark, moved: "That the continued refusal of the 
Post Office to grant licenses to and allow municipal 
corporations and other responsible bodies to compete 
with the National Telephone Company is contrary to 
the Treasury Minute of 23rd May, 1892, is inconsis- 
tent with the letter and spirit of the agreement entered 
into with the telephone companies when the Post Office 
took over the trunk lines ; and is calculated to prevent 
the establishment of a cheap, adequate and efficient 
telephone service in the United Kingdom, and to in- 
crease the difficulties and costliness of any arrangements 
for the assumption by the State of the whole telephone 
systems should that step ultimately be considered de- 
sirable." 1 The Motion was seconded by Mr. G. 
Boscawen, M. P. for Kent, Tunbridge, and Private 
Secretary to the Chancellor of the Exchequer, Sir 
Michael Hicks-Beach. 

Mr. R. W. Hanbury, Financial Secretary to the 
Treasury, and Representative in the House of Com- 
mons of the Postmaster General, the Duke of Norfolk, 

1 Hansard's Parliamentary Debates; April 1, 1898, p. 1671. 



MR. HANBURY'S CHARGES 179 

replied on behalf of the Government. Whatever may- 
have been the purpose of Mr. Hanbury, the effect of 
his reply was to strengthen and augment the popular 
misconceptions concerning the National Telephone 
Company created by the facts and events described in 
the preceding chapters. Mr. Hanbury opened his 
speech with the statement that the National Telephone 
Company's tariff must depend upon the Company's 
capitalization, which, he alleged, was altogether ex- 
cessive. He said: "Without entering into minute 
The Charge of calculations as to the actual value of the 
"Watered" Capital plant of this Company, I am able to say 
that, while I believe its capital stands at the present 
moment at a value of something like $30,000,000, the 
Post Office calculation is that that could entirely be 
replaced with a metallic circuit in every exchange for 
a very little over $12,500,000 of capital." 

At the close of June, 1898, three months after Mr. 
Hanbury had made the foregoing statement, the Na- 
tional Telephone Company had in operation 96,300 1 
subscribers' lines, which, according to the testimony of 
Mr. W. E. L. Gaine, General Manager, had cost on the 
average $200 per line. 2 Mr. Hanbury 's statement 
meant that those lines could be replaced at an average 
expenditure of $130 per subscriber's line. On the other 

1 Exclusive of 16,500 so-called private lines, which did not come 
within the Postmaster General's monopoly, and would not neces- 
sarily be purchased in the event of the Post Office buying the 
Company's plant. 

2 Report from the Select Committee on Telephones, 1898; q. 7546 
to 7556. 



180 THE TELEPHONE IN GREAT BRITAIN 

hand, in June, 1898, Mr. J. C. Lamb, Second Secretary 
to the Post Office, stated that the Post Office's capital 
expenditure upon telephone exchanges averaged $175 
to $200 per subscriber's line, 1 in the provinces, where 
the cost of installing telephone exchanges was very 
much less than in Metropolitan London. 2 Again, in 
March, 1906, it had cost the Post Office on the average 
fully $175 per subscriber's line to erect — mostly in 
small rural places, where the cost of installation is com- 
paratively low — some 340 telephone exchanges with 
8,425 subscribers. 3 

In March, 1899, Mr. Hanbury stated in the House 
of Commons 4 that he had been "considerably abused" 
for having said that the Post Office might replace the 
whole of the National Telephone Company's plant at 
an outlay of $12,500,000. He sought to justify him- 
self by saying that Mr. Gaine, General Manager Na- 
tional Telephone Company, had testified before the 
Select Committee of 1898 that the Company's 96,000 
wires had cost on an average $200 a piece, making a 
total of $19,000,000. Subtracting from that sum, the 
"water" in the capitalization, or $6,250,000, one ob- 

*At this time the Post Office was operating about forty small 
telephone exchanges, of which twenty-four had less than ten sub- 
scribers each ; eight had from ten to nineteen subscribers each ; 
two had respectively twenty and twenty-three subscribers ; two had 
respectively thirty-two and thirty-five subscribers ; and four had 
respectively forty-nine, sixty, one hundred and sixty-two and five 
hundred and sixty-five subscribers. Parliamentary Paper, No. 201, 
1899. 

2 Report from the Select Committee on Telephones, 1898; p. 559- 

3 Fifty-second Report of the Postmaster General on the Post 
Office, 1906. 

4 Hansard's Parliamentary Debates; March 6, 1899, p. 1386. 



MR. HANBURY'S CHARGES 181 

tained the figure of $12,750,000, which justified his 
statement of April 1, 1898. Mr. Hanbury, as Chair- 
man of the Select Committee, himself had examined 
Mr. Gaine on the foregoing point, and he had been told 
by Mr. Gaine that the actual cost of subscribers' wires 
— "without what is called 'water' " — had averaged $200 
per wire. And Mr. J. S. Forbes, Chairman National 
Telephone Company, had testified in reply to questions 
put by Mr. Hanbury, Chairman of the Committee, that 
the Company's cash outlay upon 52,733 subscribers' 
wires erected between April, 1892, and January, 1898, 
had been $10,136,000, or $192 per wire. 1 

The second point which Mr. Hanbury made against 
the National Telephone Company, in the debate of 
April 1, 1898, was that it had "taken advantage" of 
the past absence of competition, and had given, in some 
instances, an inefficient service. He said : "At the same 
time we have to recognize the fact that in several large 
and important towns in this country, even in the Me- 
tropolis itself, and in Glasgow and other Scotch towns, 
there have been complaints made of inefficient service. 
The Charge of ^ n the case of Glasgow that complaint 
Inefficient Service has been proved to be true by our own 
Commissioner, (Mr. Andrew Jameson, Q. C.) and in 
London Mr. Forbes admitted very grave defects in the 
service." The statements in the last sentence were so 
incomplete as to be misleading. The Commissioner's 

1 Report from the Select Committee on Telephones, 1898; q. 7546 
to 7553, Mr. Hanbury, Chairman, examining Mr. W. E. L. Gaine; 
and q. 6060 to 6062, Mr. Hanbury, examining Mr. J. S. Forbes. 



182 THE TELEPHONE IN GREAT BRITAIN 

verdict had been that the continued inefficiency of the 
telephone service in Glasgow, for the most part, had 
been due to the refusal of the Corporation of Glasgow 
to allow the National Telephone Company to construct 
a metallic circuit underground system underneath the 
streets, and that such refusal was not reasonable or 
justifiable, on grounds of public policy or other grounds. 
Mr. Forbes' admission of very grave defects in the 
Metropolitan London service had been accompanied 
by the statement that the Company could not remedy 
the defects unless it be given permission to construct 
an underground metallic circuit system. And on April 
2, 1897, before the question of municipal telephone 
licenses had become a political issue, Mr. Hanbury 
himself had said in the House of Commons : "At pres- 
ent any complaints of the telephone service arose from 
the difficulty the Company had in procuring way- 
leaves." 1 He had added : "No considerable complaint 
had been made of [the Company's tariffs in Metro- 
politan London] and he did not think they could be 
said to be excessive." Again, in March, 1899, Mr. 
Hanbury used these words : "Now, on the question of 
efficiency — on what after all does the efficiency of a 
service like this mainly depend? It mainly depends, 
of course, on way-leaves, and way-leaves undoubtedly 
this Company has not got, and will not be able to get in 
the future to the extent it wishes. And why has it not 
got them ? It has applied to Parliament time after time, 

1 Hansard's Parliamentary Debates; April 2, 1897, P» 465. 



MR. HANBURY'S CHARGES 183 

but Parliament is not going to override the local au- 
thorities, to impose everywhere and in every locality 
in the country a company on these local authorities 
without their permission. And so backed up by Par- 
liament, the Municipalities are refusing to grant these 
way-leaves, and if they are not granted, you cannot 
have an efficient service." 1 

Returning to the debate of April i, 1898, one finds 
Mr. Hanbury arguing in favor of the establishment 
of competition with the National Telephone Company, 
such competition to come from the Municipalities. He 
says : "They have the way-leaves, and they would be 
able, therefore, to lay a most efficient underground 
service, and I confess there is a great deal to be said on 
behalf of the Municipalities, who say that while they 
are perfectly willing to allow the streets 

TymfaZ^with to be taken U P for their own exchanges, 
Municipalities' they do not wish them to be at the 

Refusal of mercy of anybody who chooses to come 

Way-leaves J J J 

there, and I think there is a great deal 

of justice in that contention of the Municipalities. " 

This statement should be judged in the light of 
the following facts : In 1895, Mr. John Harrison, Town 
Clerk of Leeds, as Representative of the Association 
of Municipal Corporations, had stated before a Parlia- 
mentary Select Committee that the Association did not 
demand the power to veto the National Telephone 
Company's applications to open the streets, in order 

1 Hansard's Parliamentary Debates; March 6, 1899; p. 1382, 



184 THE TELEPHONE IN GREAT BRITAIN 

that the Municipalities might be able to regulate the 
time and manner of opening the streets, but in order 
that they might be able to impose payments for way- 
leaves, as well as prescribe the tariffs to be charged by 
the Company. 1 In the case of the Postmaster General 
versus the City of London, Mr. Justice Wright, deliver- 
ing the opinion of the Railway and Canal Commis- 
sioners, said : "I think, first, that the objection which is 
made is not of a class which it was intended these street 
authorities should be enabled to raise. I think the objec- 
tions which they are entitled to raise must be objections 
of a kind which concern them as a road authority," that 
is, as guardians of the comfort, convenience and safety 
of the public as users of the streets. In the Glasgow In- 
quiry, Mr. Sheriff Jameson denominated "self-con- 
demned" the stock arguments by which the Municipali- 
ties have sought to justify their refusal of way-leaves 
to the National Telephone Company. 

Mr. Hanbury next proceeded to discuss the difficulty 
in the way of establishing municipal telephone systems 
arising out of the fact that the telephone areas assigned 
to the National Telephone Company under the Agree- 
ment of 1892 were so large as to embrace in almost all 

,, tt -u > instances more than one local authoritv 
Mr. Hanbury s 

Insinuations as or municipality. The fact would make 
to Large Areas j t ne cessary for one local authority to 
obtain power to construct telephone plants in adjoining 

1 Report from the Select Committee on the Telephone Service, 
1895; q- 1496 to 1509, 1572 and 1579. 



MR. HANBURY'S CHARGES 185 

local authorities' areas, or for a number of adjoining 
authorities to cooperate in the construction of a so- 
called "metropolitan' ' system. On the other hand, local 
and parochial jealousies made either of those forms of 
cooperation extremely difficult, and threatened to de- 
feat the achievement of the "municipalization" of the 
telephone even if the Post Office should abandon its past 
policy of refusing to grant municipal telephone licenses 
in the absence of proof that the local system of the Na- 
tional Telephone Company was inefficient. The advo- 
cates of the policy of Municipal Telephones had per- 
ceived that obstacle, and had spread the inaccurate and 
foundationless charge that the National Telephone 
Company had succeeded in "hoodwinking" the Post 
Office into making the Company's telephone areas so 
large that it would be extremely difficult to establish 
municipal telephone systems. 

Under the foregoing conditions, Mr. Hanbury used 
the following words in discussing the telephone areas 
of the Company. "I am afraid that by some means or 
other certain areas have already been assigned to the 
National Telephone which even the larger municipali- 
ties could not possibly embrace within their boundaries. 
The area of the [National Telephone Company's] ex- 
change of London alone, I am told, is 750 1 square 
miles, a great deal larger than anything the London 
County Council 2 could possibly claim to work, and I 

1 The area was 634 square miles, covering eighty-one Local 
Authorities with an aggregate population of about 5,000,000. 
3 The area of the County of London is 121 square miles. 



186 THE TELEPHONE IN GREAT BRITAIN 

should have thought certainly, even with a large body 
like the National Telephone Company, with the licenses 
granted to it, it ought to be contented with its own 
area." These damaging insinuations Mr. Hanbury 
saw fit to make, though Mr. Arnold Morley, who, as 
Postmaster General in 1892 to 1895, na d supervised 
the demarcation of the telephone areas, had stated in 
the House of Commons, that "the settlement of the 
areas was a matter of great difficulty and complexity, 
and in regard to it the telephone companies [i.e., the Na- 
tional] had acted in a very straightforward manner." 1 
Again, in June, 1898, Mr. Hanbury, as Chairman of 
the Select Committee on Telephones, was obliged to 
admit that the National Telephone Company's Metro- 
politan London area had not been enlarged under the 
negotiations of 1892 to 1896; and that Parliament 
had passed upon and accepted that area as established 
previous to the year 1892. In fact, all of the large 
areas embracing the great centers of population had 
been established by the National Telephone Company 
previous to 1892, that is, long before the question of 
municipal telephone plants had appeared. 2 

Mr. Hanbury next stated that if municipal competi- 
tion with the National Telephone Company were not 
established, and if, furthermore, the State should fail 

1 Hansard's Parliamentary Debates; March i, 1895; p. 217, Mr. 
Arnold Morley, Postmaster General. 

a Report from the Select Committee on Telephones, 1898; q. 2991 
to 2993, Mr. Hanbury, Chairman, examining Mr. J. C. Lamb, Second 
Secretary to Post Office ; and q. 7422, Mr. W. E. L. Gaine, General 
Manager National Telephone Company. 



MR. HANBURY'S CHARGES 187 

to avail itself, in 1904, of the right to purchase the Com- 
pany's plant and business on arbitration terms, the 
State would be at the mercy of the National Telephone 
Mr. Hanbury Company, after 1904. The Company 
suggests Bad "would probably raise their rates, and 
th might run down the service, and the 

result would be that the country would get so dis- 
heartened with the telephone service .... that there 
would be a great outcry throughout the country, and 
we might have to buy this company up at its own 
price.'' This damaging insinuation should be judged 
in the light of the following facts: Before the Select 
Committee of 1895, Mr. J. S. Forbes, Chairman Na- 
tional Telephone Company, had stated that the Com- 
pany would make no further capital investment after 
1904, but that it would continue to maintain its exist- 
ing plant in the highest state of efficiency. 1 He made 
no suggestion that the Company would raise its tariff. 
Furthermore, the agreements made with Manchester, 
Liverpool, and numerous other municipalities — agree- 
ments which the Company was willing to make with 
any local authority 2 — contained provisions against the 
raising of the tariffs. Finally, when Mr. Forbes re- 
peated before the Select Committee of 1898 the state- 
ment that the Company would make no further capital 
investments after 1904, he did not mention the possi- 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q. 4943 to 4949. 

a Report from the Select Committee on Telephones, 1898; q. 7728 
and 7150, Mr. W. E. L. Gaine, General Manager; and q. 6507, Mr. 
J. S. Forbes, Chairman National Telephone Company. 



188 THE TELEPHONE IN GREAT BRITAIN 

bility of raising the tariffs. 1 He dismissed with con- 
tempt Mr. Hanbury's query whether the Company 
might not resort to the tactics which he, Mr. Hanbury, 
in Parliament had denominated to be within the limits 
of probability. 2 

The next damaging statement made by Mr. Hanbury 
was that the National Telephone Company was the only 
extensive monopoly which was not "under strict con- 
trol and very stringent regulations," as were the rail- 
ways, the water, gas and electric lighting companies. 
This statement was made in the face of the fact that 



1 Report from the Select Committee on Telephones, 1898; q. 6580 
et passim. 

2 Report from the Select Committee on Telephones, 1898; q. 6088 
to 6091, Mr. Hanbury, Chairman, examining Mr. J. S. Forbes. Mr. 
Hanbury : "Has it occurred to you, you may say this is a sugges- 
tion, but it is far from me to suggest anything you had not thought 
of before, but might not this posibility arise : that finding your 
license was going to come to an end in 191 1, and finding that there 
was no adequate competition by the Post Office or by the munici- 
palities, and finding that the Post Office has got no alternative plan 
to offer, it is quite possible that the Company might say : Well, 
we must make hay while the sun shines; we have only got to 191 1 ; 
they might raise their rates considerably, and perhaps let their plant 
run down a little ; that would lead to very great popular discontent, 
the telephone would have become a great business necessity and 
there would be an outcry on the part of the public, and they would 
say : Oh, you must buy up the Company at any cost. Do you 
contemplate any possibility of that kind arising?" Mr. Forbes: 
"I do not suppose I shall see it. When the event arises, who 
knows but you may be upon the board of the telephone company at 
that time, and if so you could advise them ; I am sure you would 
be most competent." Sir James Woodhouse : "At all events, there 
is precedent for that?" Mr. Forbes: "No, Si', there really is no 
object in anticipating that sort of thing." Mr. Hanbury: "But 
that is a possibility, is it not?" Mr. Forbes: "Well, it is a possi- 
bility ; but first of all, it would not be consistent with good faith 
on the part of the telephone company. I do not know what in 
despair they might be driven to if they were badly treated." Mr. 
Hanbury: "Would despair justify it?" Mr. Forbes: "I think 
so." Compare also Questions 6661 to 6669. 



MR. HANBURY'S CHARGES 189 

the National Telephone Company time and again had 

.. TT , : offered to come under the prohibition 

Mr. Hanbury s 

Charge of against undue preference, as well as 

"Unregulated under the obligation to supply at maxi- 
Monopoly" , . 

mum charges, in return for statutory 

way-leave powers. 1 That the Post Office invariably had 
asked the House of Commons to reject those offers, say- 
ing that the telephone business was a part of the tele- 
graph business and therefore the prerogative of the 
Crown, and that as such it differed from the gas, water 
and electric lighting businesses, and should not be 
brought under maximum charges. 2 Mr. Hanbury's 
statement also ignored the fact that under the Agree- 
ment of 1892 it had become the policy of the Govern- 
ment to cooperate with the National Telephone Com- 
pany in extending facilities to the public, holding over 
the Company the power to compete — either by means of 
a Post Office telephone exchange, or by means of a 



1 It is the established practice of Parliament never to impose 
obligations upon any company that has not statutory way-leave 
powers. 

a Report from the Select Committee on Telegraphs Bill, 1892; 
q. 342, Sir Robert Hunter, Solicitor to Post Office: " .... but 
of course it has to be borne in mind that the commodity which the 
telephone companies supply is really a monopoly of the State. It 
is the State which has the right to transmit telegrams, and these 
licensees are merely acting under the authority of the State ; and it 
would be a novel principle to say that the State should be put under 
conditions of that kind" [i. e. maximum charges, or limitation of 
dividends]. Compare also: Hansard's Parliamentary Debates; 
March 22, 1892, p. 1435, Sir James Fergusson, Postmaster General. 
"That business is in a very different position to gas, electric light- 
ing and water undertakings, because none of these trench upon or 
touch the prerogative of the Crown. . . ." 



190 THE TELEPHONE IN GREAT BRITAIN 

municipal telephone exchange — in any area in which the 
Company should fail of its duty. 1 

The next charge which Mr. Hanbury brought against 
the National Telephone Company was that the Com- 
pany's alleged practice of giving free telephone service 
to influential persons and to subscribers to the Post 
Office telephone exchanges, had been a more potent 
factor in preventing the development of the Post Office 
telephone exchanges, than had been the Treasury 
Minute of 1883, which forbade the Post Office making 
active efforts to obtain telephone subscribers. Upon 
this point, Mr. Hanbury's closing words were: "That 
is a privilege which we cannot take from them [i.e., the 
Company] ; they must go on exercising it, and probably 

they may exercise it in competition 
Mr. Hanbury's . . 

Charge of with us or w i tn anybody else" [i.e., the 

Personal Dis- local authorities]. When Mr. Han- 
crimination , , ,. " . . , Al 

bury uttered these closing words, the 

National Telephone Company had made agreements 
with Liverpool, Manchester and numerous other local 
authorities not to give preferential rates to any one, 2 
and it was ready to make similar arrangements with 
any local authority that should give it way-leave 
powers. Nor was Mr. Hanbury's bald statement con- 
sistent with the fact that the Company's numerous 

1 Hansard's Parliamentary Debates; March 6, 1899, p. 1395, Sir 
James Fergusson, who, as Postmaster General in 1891-92, had 
negotiated the Agreement of 1892. 

2 Report from the Select Committee on Telephones, 1898; q. 7146 
and 7147, Mr. Hanbury examining Mr. Gaine, General Manager 
National Telephone Company. 



MR. HANBURY'S CHARGES 191 

applications to Parliament for statutory way-leave 
powers had been accompanied by the offer to give up 
the right to make preferential charges. 1 

In passing, it may be stated that the Post Office 
opened twenty-two telephone exchanges in the years 
1 88 1 to 1883; and that when it drew up the new 
license, in 1884, it considered the question of inserting 
a clause against any licensee "giving favor or preference 
to one person over another," and "deliberately decided" 
not to insert any such prohibition. The reason was 
that in 1884 "all the drift of public opinion was in 
favor of giving the telephone companies a free hand. 
It was urged at that time that the Post Office had im- 
posed so many restrictions that they were hampering 
and preventing the development of telephonic enter- 
prise, and it was then proposed to remove all the restric- 
tions and to give the telephone companies a free hand." 2 

Mr. Hanbury closed his speech with the statement 
that the Government would assent to the appointment 
of a Select Committee to which should be referred the 
question of establishing municipal telephony. There- 
upon Mr. Caldwell withdrew his Motion. 

With the exception of a vigorous speech made in the 
House of Commons on March 6, 1899, by Sir James 
Fergusson, Postmaster General in 1891-92, and a 

1 Report from the Select Committee on Telephones, 1898; q. 7495, 
Mr. Hanbury examining Mr. Gaine. 

2 Report from the Select Committee on Telephones, 1898; q. 497, 
514, 515 and 540, Sir Robert Hunter, Solicitor to Post Office. 



192 THE TELEPHONE IN GREAT BRITAIN 

Director of the National Telephone Company since 

July, 1896, no adequate reply was made to the charges 

brought against the National Telephone Company by 

Mr. Hanbury, in the years 1898 and 1899. The reason 

was largely that "those who were best able to place the 

„ ,. , true facts of the case before Parliament 

Parliament and 

the Public too were, to a considerable extent, com- 

busy to read pelled to silence by the practice and 
courtesy of the House," they being pe- 
cuniarily interested in the National Telephone Com- 
pany. Upon this aspect of the situation, Lord Harris, 1 
a Director of the Company, expressed himself as fol- 
lows: "I have heard it said, at the conclusion of a 
Session [of Parliament] by one who knows Parlia- 
ment as well as most : 'Now everybody's property is 
safe for five months.' However, as I say, I have the 
most profound conviction in the honesty of Parliament, 
as long as it is properly educated, as long as it 
thoroughly understands what it is legislating about, but 
that is the difficulty in which Parliament has been 
placed while the telephone question has been discussed. 
People are too busy now-a-days to read the lengthy 
Blue Books, and therefore there are many Members of 
Parliament who do not understand all the difficulties 
that surround the very delicate service, and who are 
very ready to accept allegations. . . . They have not had 



1 Under Secretary for India, 1885-86; Under Secretary of War, 
1886 to 1889; Governor of Bombay, 1890 to 1895; Lord-in- Waiting 
to Queen Victoria, 1895 to 1900. 



MR. HANBURY'S CHARGES 193 

the opportunity of hearing the other side of the ques- 
tion. . . "* 

Mr. Hanbury's attack upon the National Telephone 
Company recalls to mind the words used by Lord 
Kelvin, the world's foremost student of electricity, 
while discussing the affairs of the National Telephone 
Company, in 1900, when the Post Office and the 
London County Council were harassing the Company 
for the purpose of forcing it to promise inter-com- 
munication with the subscribers to the Post Office's 
proposed London Telephone exchanges, which ex- 
changes finally were opened in March, 1902. Said 
Lord Kelvin : "I do not like to be too optimistic, and 
certainly I cannot feel quite convinced that all the 
agitation for opposition [to the Company] is wholly 
in the public interest, and wholly in a spirit of friend- 
liness to the Company in the service of the public. I 
believe there is a certain leaven of the ugly side of hu- 
man nature in what has been going on. I do not say 
that it is mere jealousy, and dislike, and rivalry of an 
unkind nature." 2 .... 

The effect of Mr. Hanbury's attack upon the Na- 
tional Telephone Company was the appointment, in 
1898, of a Select Committee to inquire and report 
whether the Government ought to authorize municipal 
competition with the National Telephone Company. 

1 The Electrician; May 12, 1899. 

2 The Electrician; May 11, 1900. 

13 



CHAPTER XIII 

THE EVIDENCE PRESENTED BEFORE THE SELECT 
COMMITTEE OF 1898 

The House of Commons orders the appointment of a Select 
Committee to consider and report upon the question of granting 
telephone licenses to local authorities. Sir Robert Hunter, So- 
licitor to Post Office, urges the necessity of giving the National 
Telephone Company adequate way-leaves. Mr. Forbes, Chair- 
man National Telephone Company, and Mr. Gaine, General 
Manager, argue that under the burdens and disabilities im- 
posed upon the Company by Parliament, the Company's charges 
must necessarily be relatively dear, while its services must be 
less adequate and less efficient than the Company would wish. 
Mr. Arnold Morley, Postmaster General from 1892 to 1895, as 
well as Mr. J. C. Lamb, Assistant Secretary to Post Office, 
express themselves against competition in the telephone business. 
The Association of Municipal Corporations expresses itself in 
favor of municipal telephone exchanges, as the alternative to 
the Post Office taking over the entire telephone business. The 
evidence as to the manner in which the National Telephone 
Company exercised its right to refuse service. The evidence 
as to the Company's policy and practice in the matter of estab- 
lishing telephone exchanges in small places and thinly popu- 
lated districts. 

In consequence of the facts and circumstances nar- 
rated in the preceding chapters, the House of Com- 
mons, on May 9, 1898, ordered: "That a Select 
Committee be appointed to inquire and report whether 
the telephone service is, or is calculated to become, of 
such general benefit as to justify its being undertaken 

194 



THE EVIDENCE PRESENTED 195 

by municipal and other local authorities, regard being- 
had to local finance ; and, if so, whether such local au- 
thorities should have power to undertake such service 
in the districts of other local authorities outside the 
area of their own jurisdiction, but comprised wholly 
or partially in the same telephone area, and what pow- 
ers, duties, and obligations ought to be conferred or 
imposed upon such local authorities. 

"That the Minutes of Evidence taken before the 
Select Committee on the Telephone Service in the Ses- 
sion of 1895, and Report of the Commissioner and the 
Evidence taken before him in the inquiry recently held 
at Glasgow, be referred to the Committee for consid- 
eration in so far as they relate to the subject of the 
present inquiry." 

Sir Robert Hunter, Solicitor to the Post Office, sub- 
mitted to the Committee "as one matter which they might 
Testimony of consider in making their Report, wheth- 
Solkitor to er the time had not come when the Post- 

Post Office master General — and his licensees, un- 

der proper restrictions 1 — should not be put in the same 
position with regard to roads that other undertakers 
of great public undertakings [i. e., water works, tram- 
ways and electric light plants] are put, and whether he 
should not be at liberty to take up the roads for the 
necessary purpose of his undertaking upon giving suit- 
able notice, and subject to the supervision of the road 

1 That is, the license granted by the Postmaster General must 
be submitted to Parliament for confirmation or rejection. 



196 THE TELEPHONE IN GREAT BRITAIN 

authority which obtains in all these matters. Then 
if the local authority prefer to do the road work them- 
selves, they should be able to do it." Sir Robert Hun- 
ter also asked the Committee to "consider whether in 
case they desired that the telephone should be so very 
largely extended as he had gathered from the course of 
the evidence that they did, the time had not come when 
the Postmaster General, and, under proper restrictions, 
any other person supplying telephonic communication, 
should not have some power of making attachments to 
private property." 1 

Mr. W. E. L. Gaine, General Manager National Tele- 
phone Company, testified that 120,000 miles of wire, 
out of a total of 143,000 miles, were subject to six 
months' notice of removal. He added that the absence 
of underground way-leaves had compelled the Com- 
pany to erect four exchanges in the City of London — 
area one square mile — where one exchange would have 
sufficed. Finally, several hundred people in Metro- 
politan London had signed contracts for telephones, 
but the Company were absolutely unable to connect 
them. 2 

The Tariffs ^ r * J' ^* Forbes, Chairman National 

are Relativeb Telephone Company, testified that the 
§ relative dearness of the telephone serv- 

ice in the United Kingdom was due to three factors: 

1 Report from the Select Committee on Telephones, 1898; q. 6917 
and 6955. 

3 Report from the Select Committee on Telephones, 1898; q. 7570, 
7413 and 7303. 



THE EVIDENCE PRESENTED 197 

the absence of way-leaves, the Post Office royalty, 
and the limitation of the life of the Company's 
franchise. He stated that in Metropolitan London the 
Company was paying on an average $7 a year per sub- 
scriber for way-leaves over the house-tops, while the 
Post Office royalty averaged $6 per subscriber. He 
added that if the Government would give the Company 
way-leaves, and forego the royalty, the Company would 
reduce its Metropolitan London Tariff by $15 a year. 
At this time the average annual sum paid per Metro- 
politan London subscriber was $72.50. 

Mr. Forbes added that the annual sinking fund con- 
tributions necessitated by the fact that the Company's 
license would expire in 191 1 constituted a heavy annual 
burden. He stated that it was commonly overlooked 
that an expanding telephone business called for heavy 
annual capital investments, and that those investments 
were made upon yearly decreasing tenure. In fact, in 

Investment T 9 ^ seven y ears before the ex P ir y of 

under Short- the franchise, the Company would dis- 
lived Franchises cont j nue the further investment of 

capital on its own account, except in so far as such in- 
vestment should be necessary for maintaining the plant 
at the highest efficiency. As for the taking on of new 
subscribers, the Company would go to the Post Office 
and say: "The telephone cannot stop expanding, and 
we will spend as much money as you like under your 
control up to 191 1, but you must find the money." No 
one could afford to invest capital on a seven year basis. 1 

1 Report from the Select Committee on Telephones, 1898; q. 5862, 
6570, 6640, 6082 and following, and 6580 to 6624, Mr. J. S. Forbes. 



198 THE TELEPHONE IN GREAT BRITAIN 

Mr. Gaine, General Manager, testified upon another 
handicap upon the National Telephone Company, name- 
Measured Service ^ : the Company's inability to abandon 
versus Unlimited the flat rate and establish the measured 
Service service. He said the measured service 

would greatly extend the use of the telephone by bring- 
ing in the small user, who was deterred by the existing 
flat rates. But the large users of the telephone, who 
commonly were people of much influence, were opposed 
to the measured service, and the Company's general 
position in the community was so difficult, not to say 
precarious, that without the aid of the Government the 
Company could not afford to abolish the flat rate and 
establish the measured service. The establishment of 
the measured service alongside of the flat rate was out 
of the question, because it was unsound financially. 
Finally, Mr. Gaine cited the Company's unsucessful 
effort, in 1892, to introduce the measured in service in 
Sheffield. The proposed Sheffield rate had been $35 
a year, with one thousand free calls, and a charge of 
two cents per call in excess of that number. 1 

Mr. Arnold Morley, who had been Postmaster Gen- 
eral in 1892 to 1895, testified at length upon the sub- 
Mr. Arnold J ect ° f com P etition - He said that 
Morley opposed three years of very close attention to 
to Competition the ques tion had convinced him that the 
Post Office should exercise its reserved power to com- 
pete with the National Telephone Company, only in the 

1 Report from the Select Committee on Telephones, 1898; q. 7614 
to 7646, and 7676 to 7678. 



THE EVIDENCE PRESENTED 199 

event of a "clear case of the Company not giving a 
service which was efficient and fairly cheap." So much 
had he been opposed to competition, that he had been 
unwilling, as Postmaster General, to recommend that 
the Post Office compete actively with the Company in 
the few places in which the Post Office had established 
telephone exchanges. He added that his views on 
competition were shared by the experienced officials of 
the Post Office as well as by "almost everyone who had 
had experience in telephone matters." 1 

Mr. J. C. Lamb, Second Secretary to Post Office, 
said he deemed it "very undesirable that a private corn- 
Mr / C Lamb P an y snou ld be allowed to reach a po- 
opposed to sition of monopoly such as the National 

Competition Telephone Company promised to reach ; 

but on the other hand he was perfectly convinced that 
great public inconvenience and confusion would result 
from the establishment of rival systems." He added 
that "it was entirely erroneous to say that the Na- 
tional Telephone Company were mere licensees of the 
Postmaster General." He denominated the Agree- 
ment of 1892 a working agreement which provided for 
"cooperation, alliance and harmonious working" be- 
tween the Post Office and the Company. He added 
that actual experience had proved that the possibility 
of competition held over the Company as a corrective, 
had produced certain good results in the past, and 
would produce them again, should occasion arise. 

1 Report from the Select Committee on Telephones, 1898 ;q. 6701 
to 6746. 



200 THE TELEPHONE IN GREAT BRITAIN 

Mr. Lamb expressed the opinion that the Post Office 
ought to take over the National Telephone Company's 
property in 191 1. That some years before that time 
it should approach the Company with the view to 
agreeing upon the price to be paid. Should the nego- 
tiations come to naught, through the Company asking 
too high a price, the Post Office should begin immedi- 
ately the construction of telephone plants throughout 
the United Kingdom, and replace bodily the Company 
in 1911. 

Mr. Lamb expressed at length his personal views on 
competition by the municipalities. He said, if the 
Company should meet that competition, the Govern- 
ment would have to pay a large sum for good-will in 
the event of its purchasing the Company's plant in 1904. 
He said: "If you are dealing with a system which is 
open to attack [competition], you can argue [before 
the arbitrator] that its good-will is not of high value; 
but if you are dealing with a system which has been 
attacked and has repelled the attack, you are then in 
the presence of something that has proved itself prac- 
tically unassailable, and, therefore, a thing with a good- 
will of high value." He added that it was possible 
that the State ultimately would have to take over the 
telephones, and therefore prudence forbade entering 
upon any policy which would be liable to reduce the 
telephone tariffs to an unremunerative basis. He be- 
lieved the policy of municipal competition was open to 
that objection, because it would put the making of 



THE EVIDENCE PRESENTED 201 

tariffs into the hands of men who proceeded, not on 
the basis of experience, but on the basis of "mere 
estimate." 

Mr. Lamb's next argument was that municipaliza- 
tion would "strike at the root of any development of 
the telephone system in rural districts." The local 
authorities would confine themselves to the rich fields. 
On the other hand, the State could not undertake to 
supply the non-paying regions, unless it were permitted 
to make a profit in the richer fields. The result would 
be that the poorer fields would be left entirely without 
telephonic facilities. He added that it was "idle" to 
say that the local authorities were willing to give up 
their licenses in 191 1. If the municipal telephone 
businesses should prove successful, no Government 
would dare to take those businesses away from the 
municipalities. 

Finally, under the system of municipal licenses, the 
difficulties of administration would increase enormous- 
ly. In dealing with one great company, the Post Office 
had to arrive at an understanding with one manage- 
ment only, but in dealing with innumerable local au- 
thorities throughout the United Kingdom, the Post 
Office would be "incessantly in dispute with innumer- 
able managers on questions of the interpretation of the 
license and matters of practical working." For ex- 
ample, the States of Guernsey had scarcely got their 
telephone plant into working, but they had already 
been disouting with the Post Office on points which 



202 THE TELEPHONE IN GREAT BRITAIN 

long ago had been settled with the National Telephone 
Company. Such disputes would lead the local authori- 
ties to refuse the Post Office way-leaves for telegraphs 
and for telephone trunk wires, a practice which already 
had made it extremely difficult for the Post Office to 
meet the public demands for increased telegraphic and 
telephonic facilities. 

In conclusion, Mr. Lamb stated that the great Cham- 
bers of Commerce, and the most influential newspapers 
[including the Glasgow Herald and the Scotsman], 
were not in sympathy with the demand for the munici- 
palization of the telephone. 1 

Mr. W. H. Preece, Engineer-in-Chief to the Post 

Office, testified : "I think the whole desire to hand over 

the telephone to the municipalities is 
Mr. W. H. Preece F . _ . 

opposed to based on three assumptions. The first 

Municipal Tele- [ s that the Post Office cannot do the 

phone Plants . - , , ,, , 

work properly or cheaply; the second 

is that the National Telephone Company do not do 
their work properly (I will not say cheaply) ; and the 
third is that the municipalities can do it better and 
cheaper. Now I contend that all these three assump- 
tions are wrong." He added: "If it should be the 
misfortune of this Committee to recommend that 
municipalities have a license, the municipalities would 
walk off with the cream that would enable us [the Post 

1 Report from the Select Committee on Telephones, 1898; q. 11 18, 
7807, 1028 to 1037, 7781, 7784, 7785, 7796, 7795, 7798 and 7792; and 
Report from the Select Committee on the Telephone Service, 1895 ; 
q- 5279. 5261, 5258, 5225 and 5272. 



THE EVIDENCE PRESENTED 203 

Office] to compensate ourselves for the loss in these 
[non-paying] rural districts." 1 

The Association of Municipal Corporations, which 

consists of 268 English cities, but counts no Scotch 

, cities among its members, sent four 
The Demands of 
the Association representatives to lay before the Select 

of Municipal Committee the resolutions passed by 

the Association's Council, on April 28, 
1898. The first resolution, which had been carried 
almost unanimously, was : "That in the opinion of this 
Council the subject of telephonic supply in this country 
should be treated as an Imperial and not as a local one, 
and that the Postmaster General should have the sole 
control of the telephone system." The second resolu- 
tion, carried by a vote of 19 to 17, was: "That in the 
event of the Postmaster General not taking over the 
telephone service it should be competent for municipal 
and other local authorities to undertake such service 
within areas composed of their own districts or a com- 
bination of such districts." The opponents of this 
resolution had held "that the importance to commercial 
centers of being enabled to communicate not only with- 
in their own particular municipal or urban area but 
outside that, and to communicate with other towns is 
so great that the service cannot be satisfactorily sup- 
plied unless the whole concern is under the control of 
one body" ; and that the National Telephone Company 

1 Report from the Select Committee on Telephones, 1898; q. 5359, 

5325, 5366, 5377, 5364 and 5365. 



204 THE TELEPHONE IN GREAT BRITAIN 

should be that body, if the Postmaster General were 
not made that body. The third resolution, carried un- 
animously, was : "That no powers should be given to 
any telephone company which will enable them to in- 
terfere with streets or with the rights of individuals in 
property, unless statutory conditions and obligations 
are at the same time imposed on the company for the 
protection of the public, particularly with regard to 
maximum charges, maximum dividends, and obliga- 
tions to supply." 1 

Mr. H. E. Clare, Town Clerk of Liverpool, and one 
of the representatives of the Association of Municipal 
Corporations, testified that in return for the grant of 
underground way-leaves, the National Telephone Com- 
pany had contracted with Liverpool and other cities to 
give no undue preference, to assume the obligation to 
supply, as well as not to raise the tariff then in force. 
And Mr. W. E. L. Gaine, General Manager National 
Telephone Company, added that the Company was 
"absolutely" prepared to make similar contracts with 
any other local authorities. 2 Therefore, so far as the 
third resolution was concerned, the only demand of the 
Association that could not be satisfied at the pleasure 
of the local authorities, was the demand that Parlia- 
ment should fix general maximum charges as well as 
the maximum dividend to be paid by the Company. 

1 Report from the Select Committee on Telephones, 1898; p. 503 
and q. 3148 and 4276. 

2 Report from the Select Committee on Telephones, i8q8; q. 4282 
and 4292, Mr. Clare; and q. 7728, Mr. Gaine. 



THE EVIDENCE PRESENTED 205 

And there the difficulty arose not from the unwilling- 
ness of the National Telephone Company, but from the 
unwillingness of the Government. In 1884, 1885, 
1888, 1892 and 1893, tne Company had lodged Bills 
asking for statutory way-leave powers on the condition 
of the acceptance of the statutory obligations which it 
was the established policy of Parliament to impose 
whenever it granted statutory powers to a public serv- 
ice company. In each case the Postmaster General had 
asked the House of Commons to reject those Bills with- 
out discussion, on the twofold ground that the licensee 
of the Post Office should have no powers not delegated 
by the Post Office; and that Parliament should not 
impose restrictions upon the profits made by a licensee 
of the Post Office who was exercising the monopoly 
rights of the Post Office, rights denominated the 
"prerogative of the Crown." And yet, no less a per- 
son than Mr. Hanbury, Financial Secretary to the 
Treasury in 1895 to 1900, habitually spoke in the 
House of Commons, as the Representative of the Post- 
master General, as if the question of maximum charges 
were one between the National Telephone Company and 
Parliament, and not a question between the Govern- 
ment of the day and Parliament 

The reason for the persistent refusal of the succes- 
sive Governments of the day to allow the question of 
the imposition of statutory limitations and obligations 
to proceed to the stage of discussion by the House of 
Commons have been stated in previous chapters. They 



206 THE TELEPHONE IN GREAT BRITAIN 

were briefly, unwillingness to give the Company the 
unrestricted power to expand, which statutory way- 
leave powers would have given ; and fear lest the House 
of Commons should impose maximum charges which 
would make unremunerative the business of the Com- 
pany, a business which the Government contemplated 
taking over in 191 1. In explanation of this apprehen- 
sion, it should be added that the public demand tor the 
imposition of maximum charges, rested on the assump- 
tions that telephone exchanges could be installed in 
Metropolitan London and in the large provincial cities 
at an average capital expenditure per subscriber of re- 
spectively $190 and $90; and that they could be oper- 
ated profitably on a flat rate of $50 to $60 in Metro- 
politan London, and a flat rate of about $25 in the large 
provincial cities. The Post Office, on the other hand, 
persistently denied the soundness of those assumptions. 
In 1898 it tendered no estimates of the cost of installing 
telephone exchanges, lest those estimates be quoted 
against it in the event of the purchase of the Com- 
pany's plant in 1904, on arbitration terms. But in 
1895, Mr. W. H. Preece, Engineer-in-Chief to Post 
Office, tendered to the Select Committee on Telephones 
an estimate of $275 per subscriber for Metropolitan 
London, and $225 per subscriber for the provinces. 1 
As to the second assumption, the Post Office for some 
years past has maintained that a cheap telephone serv- 

1 Report of the Select Committee on Telephones, 1898 ;q. 4351* 
Mr. Clare, Town Clerk of Liverpool. 



THE EVIDENCE PRESENTED 207 

ice cannot be given by means of a flat rate ; that it can 
be given only by means of the measured service. On 
the other hand, the public has rejected the measured 
service policy, and has demanded a low flat rate. 

In passing it may be stated that it is true that when 
the Post Office established telephone exchanges in 
Metropolitan London, it established a flat rate along 
side of a measured service rate. But it did that in 
deference to public opinion, and against its best judg- 
ment. Before the Select Committee of 1905, for 
example, Mr. H. Babington Smith, Permanent Secre- 
tary to Post Office, said: "I should like to express a 
very clear opinion that if it could be effected, the right 
thing to do would be to get rid of the unlimited service 
rate altogether/' He stated that the flat rate tended 
to make the large users "overload" their telephone line 
before subscribing to a second line and third line. Mr. 
J. Gavey, Engineer-in-Chief to Post Ofrice, explained 
that such "overloading" led to great public dissatisfac- 
tion being produced by the frequent response from 
"central" that the line was engaged, besides increasing 
the cost of operation. It took as much of the opera- 
tor's time to answer a call, test a line, and reply : "line 
engaged," as it did to connect with the person called. 
He added that the flat rate also encouraged "trivial" 
conversation, and thus increased the cost of operation. 
In support of that statement, he said that on the 
assumption that 80 per cent, of the calls originating at 
any one exchange would have to be put through a 



208 THE TELEPHONE IN GREAT BRITAIN 

second exchange, the annual cost of operation in Metro- 
politan London, was $6.28 per subscriber for 4 calls 
a day, $11.36 for 8 calls a day, and $15.84 for 12 calls 
a day. His conclusion was that "a low flat rate would 
spell financial ruin and an ultimate raising of the rate." 1 

Because of the "campaign" use which Mr. Hanbury 
and others made of the fact that the National Telephone 
The Right to Company was not under obligation to 
Refuse Service supply service to all applicants, but 
possessed, as well as exercised, the power to pick and 
choose, it is necessary to present the evidence on the 
manner in which the Company exercised the power in 
question. In the first place the Company refused to 
serve any one who declined to give the Company per- 
mission to attach to his property fixtures or poles for 
the stringing of wires which were to serve other of the 
Company's customers. Upon this practice the Com- 
missioner at the Glasgow Inquiry commented as fol- 
lows : "I do not see anything unfair in a person who 
uses the telephone himself being requested to give fa- 
cilities for extending its use to others." Furthermore, 
the London County Council, which body counted upon 
having underground way-leave powers, proposed to 
make it a condition of supply that each subscriber 
"provide one support for wires free of charge," adding 
that thus the County Council Telephone Exchange 
would obtain "a very large number of supports free of 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 354, 2114, 514, and 1802 to 1808. 



THE EVIDENCE PRESENTED 209 

rental." Sir Robert Hunter, Solicitor to Post Office, 
denominated the practice in question as the imposition 
by the National Telephone Company of an "exception- 
ally onerous condition." But he added that if the Post 
Office were operating telephone plants and "were pre- 
vented from getting at a [an intending] subscriber's 
house, or a whole district, by the refusal of persons to 
give way-leaves [over the house-tops], of course, the 
Post Office would not supply them." 1 

The Company also refused to supply any one who 
was unwilling or unable to give security for the proper 
care of the instruments and other property to be in- 
stalled on the applicant's premises. The suggestion 
that the time might arise when the Company would 
refuse a "reputable" applicant because in the particular 
area concerned the Company's business had reached 
the point at which it would be unprofitable to take on 
new subscribers, the Chairman of the Company 
repudiated with the words : "Of course, a right which 
you cannot [in fact, as distinguished from theory] ex- 
ercise, and do not exercise, and which it would be folly 
to suggest we exercised ; we should, of course, have no 
hesitation in giving up ; what we want protection from 
is disreputable people." 2 In this connection it should 

1 Report from the Select Committee on Telephones, 1898^.5947 
to 5971, Mr. J. S. Forbes, Chairman National Telephone Company, 
and Sir Robert Hunter, Solicitor to Post Office ; and Report, etc., 
by Andrew Jameson, Q. C, etc., into the Telephone Exchange Service 
in Glasgow, 1897 ; p. 8. 

2 These statements, of course, do not apply to the period which 
would begin with 1904, when the Company would be obliged to 
discontinue any further capital investment, that is, would be 
obliged to discontinue taking on any new subscribers whatever. 

14 



210 THE TELEPHONE IN GREAT BRITAIN 

be remembered that The Gasworks Clauses Act, 1871, 
contains this clause: "The companies are obliged to 
serve any premises within 25 yards of their mains but 
only on condition, . . . . (2), that the owner or 
occupier agrees to take a supply for at least two years, 
the payment for which must amount to 20 per cent, per 
annum on the outlay of the undertakers in providing 
pipes; (3) that the owner or occupier gives security; 
and (4), that supply may be discontinued if security 
becomes invalid. m 

The nature of the "campaign of education" con- 
ducted by Mr. Hanbury and others makes it necessary 
to review also the evidence submitted on the question 
Service in °f tne policy of the National Telephone 

Small Places Company in the matter of establishing 
telephone exchanges in small places. Upon that ques- 
tion Mr. Arnold Morley, who had been Postmaster 
General in 1892 to 1895, stated: "So far as I know, 
wherever there was a reasonable demand for the tele- 
phone, the National Telephone Company gave a serv- 
ice." He added that in his opinion it would not have 
been a wise policy for the company to establish plants 
before there was a reasonable demand, with a view to 
making "the supply create the demand/' 2 



1 Report from the Select Committee on Telephones, 1898; q. 5927, 
5941, 5945. 5922 and 5918, Mr. J. S. Forbes, Chairman National Tele- 
phone Company. 

3 Report from the Select Committee on Telephones, 1898; q. 6721 
to 6725. 



THE EVIDENCE PRESENTED 211 

Mr. J. C. Lamb, Second Secretary to the Post Office, 
from 1892 on had given the most minute attention to 
this subject. He was asked : "As a matter of fact, in 
these small and sparsely populated districts, has the 
National Telephone Company put up any facilities for 
the public?" He answered: "My belief is that they 
have very largely extended the system in such districts 
as you describe." He was again asked : "As a matter 
of fact, do the National Telephone Company go into 
any area where they cannot expect a reasonable profit ; 
they are a trading company for the purpose of making 
profit for the shareholders?" He replied: "I think 
they go there sometimes with a view to supporting 
their general system, and making it felt that their sys- 
tem is a national system .... I think they have some 
regard for their position in the country as practical 
monopolists." He was further asked: "Mr. Forbes 
said, in his evidence, that there was no sentiment about 
business; that was sentiment?" He replied: "No, I 
do not think it is sentiment ; I think it is simply part of 
a plan; they are one institution endeavoring to carry 
out a service throughout the country, and my belief is 
that they endeavor to look at their service as a national 
one. I daresay they think it protects their general 
system against competition, if they can say to the pub- 
lic : We are going, not merely to places where we can 
get an immediate return, but we are endeavoring to 
serve the public generally, I think that is not sentiment, 
that is business." Mr. Cawley, who had put the pre- 



212 THE TELEPHONE IN GREAT BRITAIN 

ceding question, now queried : "Yes, that is business. 
In other words, if the National Telephone Company 
thought there was any danger of a new company start- 
ing, they would go to that place and be there first, I 
suppose ?" Mr. Lamb replied : "I think they would go 
there now ; they are willing to go." 1 

Sir James Fergusson, who had been Postmaster 
General in 1891-92, and in 1896 had become a Director 
of the National Telephone Company, testified that "it 
was a common thing in England" for the Company to 
open an exchange where there were only 10 or 12 sub- 
scribers. "Wherever a few people, sufficient to make 
the thing pay, have desired an exchange, the Company 
has been accustomed to open one, an enormous number 
have been opened in that way ; of course, they grow by 
degrees." 2 

Mr. Hanbury, Financial Secretary to the Treasury, 
was Chairman of the Committee to which was ten- 
Mr. Hanbury dered the fore g oIn & evidence. In June, 
wants "A 1 899, he introduced into Parliament a 

General Service" Bin> whkhj among . other thingSj gave 

upward of 1,300 local authorities power to establish 
telephone exchanges, at the same time forbidding the 
National Telephone Company from erecting an ex- 

1 Report from the Select Committee on Telephones, 1898 ; q. 706, 
1054, 1055, 1837, 7838 and 7920 to 7922, Mr. J. C. Lamb, Second 
Secretary to Post Office. 

2 Report from the Select Committee on Telephones, 1898 ; q. 2200. 
The foregoing statement was repeated in Hansard's Parliamentary 
Debates, March 6, 1899. 



THE EVIDENCE PRESENTED 213 

change in any area in which it had not an exchange in 
operation or under construction. Mr. Hanbury used 
these words : "What we want in this country is a gen- 
eral service which will extend itself over the whole 
country; but the National Telephone Company picked 
out the most densely populated parts of the country 
and you could not blame them for that. Being a private 
company they naturally consulted their own interests. 
.... If the company is not working already in the 
smaller urban districts, those districts need not fear 
any competition . . . . ; they will be absolutely free to 
start a system of their own without fear of competi- 
tion from the National Telephone Company. As to 
the smaller districts, is it the fact that they are not pay- 
ing districts ? The experience of Norway and Sweden 
shows that they are paying districts, and when asked 
before the Select Committee of last year, where, if he 
had his choice, he would prefer to start an exchange, 
Mr. Preece [Engineer-in-Chief to Post Office] said he 
would choose the small rural districts . . . . ' n 

In 1905, when the policy of telephonic service by 
local authorities was abandoned as a complete failure, 
not a single rural or urban district had established a 
telephone exchange. Five cities, ranging in popula- 
tion from 90,000 to 1,000,000, had established ex- 
changes. One small city with a population of 30,000, 
had established an exchange, had become discouraged 

1 Hansard's Parliamentary Debates; June 24, 1899, p. 139. 



214 THE TELEPHONE IN GREAT BRITAIN 

after two and one-half years' operation and had sold 
out to the National Telephone Company. 

The Post Office stepped in and to some extent filled 
the void created by forbidding the National Telephone 
Company entering any new field, but the Post Office 
never established a telephone system of doubtful finan- 
cial prospect unless the persons to be served by that 
system had guaranteed the Post Office an income suffi- 
cient to pay not only the interest upon the captial in- 
vested but also sinking fund contributions which in a 
comparatively short time would repay the entire capi- 
tal investment. 1 

The evidence submitted to the Select Committee is 
properly summed up in the statement that if the Na- 
tional Telephone Company were given 

Nummary , , £ i 

adequate powers of way-leave; were 

given assurance that it would be treated reasonably in 
191 1 ; and were given such security of position that it 
could go counter to public opinion to the extent of 
substituting the measured service for the unlimited 
user service; then the Company would give a service 
that would be reasonable in price, efficient and ade- 
quate, in the cities and towns as well as in the rural 1 
districts. 



1 Report from the Select Committee on Telephones, 1898 ; q. 53i5> 
5065 to 5070 and 4925, Mr. W. H. Preece, Engineer-in-Chief to 
Post Office; and Hansard's Parliamentary Debates; August 3, 1899, 
p. 1247, Lord Harris; and June 21, 1906, p. 392, Mr. S. Buxton, 
Postmaster General. 



CHAPTER XIV 
THE REPORT OF THE SELECT COMMITTEE, 1898 

The Select Committee makes a Report that is not supported 
by the evidence that had been presented. It recommends "im- 
mediate and effective competition by either the Post Office or the 
local authority" though there is grave doubt whether Parliament 
and the Government can authorize such competition without 
violating "the equity of the understanding" that had obtained 
between the Government and the National Telephone Company 
at the time of the so-called purchase of the long distance tele- 
phone wires, in the year 1892. 

The main conclusion of the Select Committee on 
Telephones, 1898, was: that "general, immediate and 
effective competition by either the Post Office or the 
local authority is necessary/' and "that a really effi- 
cient Post Office service affords the best means for 
securing such competition. We further consider that 
when in an existing area in which there is an [a Na- 
tional Telephone Company] exchange, the local au- 
thority demands a competing service, the Post Office 

either ought to start an efficient tele- 
com mittee . 
recommends phone system itself, or grant a license 

All-round to the local authority to do so. With 

Competition . , . , . . ,. 

regard to areas in which there is no 

exchange, and districts which are not [at present, tele- 
phone] areas, we think some provision should be made 

215 



216 THE TELEPHONE IN GREAT BRITAIN 

beyond what is now offered by the Telephone Company 
for giving a service when there is a reasonable local 
demand. In such cases the Post Office should either 
start a service of its own, or should grant licenses to 
the local authorities to do so, subject to proper regula- 
tions. 

"Your Committee in thus recommending a Post 
Office service assume that it will constitute a real and 
active competition, and that concessions to the Com- 
pany not required by the Agreement [of 1892] will 
cease. Such a competition should, in their opinion, be 
carried on by a distinct and separate branch of the 
[Post Office] Department, and in future be conducted 
under strictly businesslike conditions, and by a staff 
specially qualified for such a duty." 

This conclusion was not in accord with the trend of 
the evidence submitted to the Committee. That 
evidence had been that if the National Telephone Com- 
pany were given adequate way-leave powers; the as- 
surance that it would be treated reasonably in 191 1: 

and such security of position that it 
Committees J 

Recommendation could go counter to public opinion to 

not supported by the extent of substituting the measured 
the Evidence . , _ 11/- 

service for the flat rate ; then the Com- 
pany would give a service that would be reasonable in 
price, efficient and adequate, in the cities and towns 
as well as in the rural districts. 

General competition, by either the Post Office or 
local authorities, had been advocated before the Com- 



REPORT OF SELECT COMMITTEE, 1898 217 

mittee only by two persons who, in 1898, might pos- 
sibly have been deemed entitled to an opinion on that 

Testimony of Sub J ect Th ° Se P erSOnS Were Sir AleX ' 
Sir A. Binnie ander Binnie, who was Engineer-in- 
and Mr. Bennett Chief to the London County Council, 

but had had no experience in building or operating 
telephone exchanges ; and Mr. A. R. Bennett, some- 
time in the employ of the National Telephone Com- 
pany, and more recently consulting engineer to Glasgow 
and other local authorities. Those witnesses' recom- 
mendations of general competition were based on 
estimates of the cost of installing telephone exchanges 
which subsequent experience proved to be wrong. 
Those witnesses' estimates were controverted by the 
testimony given by Mr. Preece, Engineer-in-Chief 
to the Post Office, before the Select Committee 
of 1895, which Committee's evidence was referred to 
the Committee of 1898. The estimates of Mr. Bennett, 
the Commissioner in the Glasgow Inquiry had denomi- 
nated "opinion and advice likely to be more theoretical 
than practical, at all events as regards the financing of 
the system." The evidence taken at the Glasgow In- 
quiry also had been referred to the Committee of 1898. 
The Select Committee of 1898 endorsed Mr. Ben- 
nett's estimate, saying: "It seems clear to your Com- 
mittee that a local authority should be able to construct 
a system at a price below that which from various 
causes the Company have spent upon theirs, and this 
opinion is confirmed by the fact that the probable cost 



218 THE TELEPHONE IN GREAT BRITAIN 

of such a service in the hands of the Glasgow Corpora- 
tion is based not upon estimates alone but on tenders 
actually received." Mr. Bennett estimated at about 
$95 per subscriber the cost of supplying Glasgow with 
telephone service. In May, 1906, the actual cost had 
been $143 per telephone in use, and $183 per subscriber. 
The Committee supported its conclusion that "gen- 
eral, effective and immediate competition' ' was neces- 
sary, in part by the statement that "the Company, 
unlike all similar monopolies, has power to charge 
what rates it chooses ; and in view of the comparatively 
Possible small amount already [i.e., thus far] 

Breach of Faith placed to reserve, and the short period 
Suggested for whkh the Hcense win run) k is 

evident that in order to recoup its great expenditure, 
the present high rates of the Company may soon be still 
further raised. But any further raising of the rates, . . . 
would inevitably produce complaints, from all sides, of 
the increased dearness of a service which becomes daily 
more vital to the trading interests of the country, and 
a public demand might in consequence arise for the 
Government to undertake the service itself. Unless 
the Government had already an alternative plant avail- 
able, supplied wholly by the Post Office or partly by 
municipal licensees, the purchase of the Company's 
undertaking at an inflated price might thus be imposed 
upon the Government. The inducements to the Company 
to produce such a result are obvious, and your Commit- 
tee cannot too strongly recommend that no delay should 



REPORT OF SELECT COMMITTEE, 1898 219 

occur in taking adequate precautions to prevent it. 
Mr. Preece informed your Committee that it would 
probably take five years to provide such an alternative 
plant for the whole country." 

The Committee made the foregoing argument, 
though the Chairman of the National Telephone Com- 
pany had repudiated the suggestion that the Company 
would raise its rates after 1904, saying that such an 
action would be a breach of faith, and though the 
Company had made contracts with numerous local 
authorities not to raise its rates at any time, and was 
ready to make similar contracts with any and every 
local authority. 

Throughout, the Report of the Select Committee 
suggests that the National Telephone Company does 
exercise, or is liable to exercise, in a manner contrary 
to public policy, its power to refuse supply and to give 
preferential subscription rates. It ignores the uncon- 
troverted testimony of the Chairman of the National 
Telephone Company that the power to refuse supply 
never had been exercised in a manner contrary either to 
public policy or to the spirit of the law ; as well as the 
fact that the power to give preferential rates had not 
been exercised for some years past. It ignores also the 
fact that the Company had contracted with numerous 
local authorities not to give preferential rates, and to 
assume obligation to supply all applicants, and was 
ready to make similar contracts with any and every 
local authority that would give it underground way- 
leaves. 



220 THE TELEPHONE IN GREAT BRITAIN 

The Committee indulged in hypothetical and specious 
arguments to the effect that it would be to the pecuniary 
advantage of the company to pursue certain policies 
which would be contrary to public policy, and then 
suggested that the Company was liable actually to 
adopt those policies. Those hypothetical and specious 
arguments were of a nature to commend themselves as 

The Committee's S0Und t0 the P erSOn wh ° had not ex " 
Hypothetkal amined minutely the voluminous evi- 

Arguments dence taken by the Committee itself, or 

referred to the Committee in the Reference. And it 
goes without saying that few Members of Parliament, 
very few writers for the newspaper press, and practi- 
cally only a negligible portion of the general public had 
either the inclination or the leisure to read that volu- 
minous testimony. The Committee, therefore, incurred 
little risk in ignoring the fact that the Company had 
submitted uncontroverted testimony to the effect that 
the hypothetical reasoning was unsound when tested 
by fact and experience, that is, when put forth as any- 
thing more than an ingenious exercise of the imagina- 
tion. The Committee also was safe in ignoring the 
testimony of the Company's Chairman and General 
Manager, that, as a matter of expediency, the Com- 
pany would not dare to adopt the policies suggested, 
even if those policies should be sound in fact. 

An instance of the foregoing hypothetical argu- 
ment and insinuation, most damaging to the Company, 
as well as admirably calculated to awaken unfounded 



REPORT OF SELECT COMMITTEE, 1898 221 

apprehension in the public mind, is found in the Com- 
mittee's statement that : "Under the peculiar conditions 
(or freedom from conditions) of its license the Com- 
pany has an obvious reason for limiting the number 
of its subscribers. As subscribers upon an exchange 
increase, the cost of the service increases so much that 
a point is at last reached at which an increased number 
of subscribers fails to repay the additional cost. The 
Company, unlike the Post Office from which it receives 
its license, has power to refuse service and thus to pick 
and choose its subscribers and thereby to limit their 
number, and in doing this it is materially assisted by 
the grant of extensive areas, which afford a wide choice 
of the most remunerative subscribers, and at the same 
time go far to protect it against competition. 

"As the number of subscribers on an exchange is thus 
restricted the number of exchanges within an area must 
in consequence be increased. The cost of thus sending 
a message through two or three exchanges and over 
the junction wires has of course to be paid for by some- 
body, and it is paid for in the disguised form of a 
larger annual subscription. Under a scheme of smaller 
areas than those which have in fact been allotted to the 
company, the wires which connect such exchanges 
would in most instances have been Government trunk 
wires directly producing a revenue to the Post Office." 

The charges conveyed in the foregoing quotation, 
and particularly in the last sentence, are in direct con- 
flict with the ^incontroverted testimony of Mr. J. C. 



222 THE TELEPHONE IN GREAT BRITAIN 

Lamb, Second Secretary to the Post Office, who had 
supervised the entire demarcation of areas from 1892 
to 1898. Mr. Lamb's testimony was that areas had 
been mapped out exclusively on the twofold principle 
that only such places must be grouped in one 
area as had such close commercial and social con- 
nections as to be in fact one place, and that the 
Post Office trunk wire revenue must never be allowed 
to suffer. On the latter point Mr. Lamb testified 
that Mr. Kempe, the Treasury Official deputed 
to safeguard the Treasury's interest in the trunk wires, 
not only had approved the principles which had gov- 
erned Mr. Lamb, but in a number of specific instances 
had expressed a willingness to go further than Mr. 
Lamb had been willing to go. Mr. Lamb added that 
if the Post Office had insisted on restricting the Com- 
pany to the areas of the towns themselves, to the ex- 
clusion of small outlying places, thus compelling the 
persons in such outlying places to pay for every con- 
versation with the adjoining town the minimum trunk 
line fee of 6 cents for a three minutes' conversation, 
the effect would have been greatly to restrict the spread 
of the telephone, and thus to starve the trunk line 
revenue itself. The practice of including in one large 
area many small places, or large and small places, as 
carried out by the Post Office had increased the trunk 
line revenue. 1 



1 Report from the Select Committee on Telephones, 1898; q. 695 
to 700, 755 to 765, 2911 and following, 3025 to 3033, 8880 and 621. 



REPORT OF SELECT COMMITTEE, 1898 223 

If the Select Committee on Telephones, 1898, had 
been governed by the evidence submitted to it, it would 
have reported that past experience showed that the 
National Telephone Company was a public-spirited 
institution which obeyed not only the letter but also 
the spirit of the law. But that the Company could not 
give as extensive, efficient and cheap a service as the 
then state of telephony warranted, unless the Company 
were given adequate rights of way in the streets, as- 
surance of commercially reasonable treatment in 191 1, 
and sufficient independence of public opinion to be able 
to substitute the measured service for the unlimited 
user service. But the Select Committee was dominated 
by its Chairman, Mr. R. W. Hanbury, who had back 
of him the powerful Association of Municipal Corpora- 
tions. The Committee's Report was largely a restate- 
ment of the charges which Mr. Hanbury had brought 
against the Company in Parliament early in the year 
1898. 

The readiness of the Select Committee of 1898 to 
recommend "general, immediate and effective competi- 
tion by either the Post Office or the local authority," 
although no evidence had been presented that the Na- 

_ „ . tional Company had failed in its duty 

The Rectitude ^ J . 

of Inaugurating a s a public service corporation, is the 

All-around more remarkable since there was grave 

doubt whether Parliament was alto- 
gether free to authorize such competition in the absence 



224 THE TELEPHONE IN GREAT BRITAIN 

of failure of duty on the part of the National Telephone 
Company. 

In 1892, when the Government approached the Na- 
tional Telephone Company with a view to purchasing 
the Company's trunk wires, in order to compensate 
the Treasury for the falling off in the revenue of the 
State Telegraphs caused by the development of the 
practice of speaking between towns by means of the 
telephone, the National Telephone Company was in 
an invulnerable position, so far as the possibility of 
competition by companies or by municipalities was 
concerned. 1 Unwillingness to give up that position 
of practical exemption from the possibility of competi- 
tion from any one short of the State itself, made the 
National Telephone Company remain to the end an 
unwilling party to the sale of the trunk lines. The 
Company's apprehensions were in a measure allayed by 
the speech made in the House of Commons on March 
29, 1892, by the Chancellor of the Exchequer, Mr. 
Goschen, 2 in reply to the Motion of Dr. Cameron, 
[Glasgow], that the State should take into its hands 
Mr Goschen's ^ e wno ^ e telephone service, trunk lines 
Declaration of as well as local exchanges. Upon that 
Pollcy occasion Mr. Goschen said that if it 

possibly could be avoided, the Government was not 
prepared either to buy the Company's local plants, or to 
compete with the Company in the local telephone busi- 

1 Hansard's Parliamentary Debates; March 29, 1892, p. 194, Mr. 
Goschen, Chancellor of the Exchequer. 

3 Hansard's Parliamentary Debates; March 29, 1892, p. 194. 



REPORT OF SELECT COMMITTEE, 1898 225 

ness. Either proposal in fact meant the purchase of the 
National Telephone Company's local plants, for in as 
much as the National Telephone Company could not 
survive competition with the State, it would be neces- 
sary to compensate it for the loss of its business con- 
sequent upon State competition. Mr. Goschen said 
it would be "against the spirit of the license" of the 
National Telephone Company, if the Government 
"were to take the local arrangements [businesses] en- 
tirely into its hands [by means of competition] during 
the continuance of that license, to the detriment of 
those who on the faith of that license have been extend- 
ing their system up to the present moment." On the 
other hand, deference to public opinion compelled the 
Government to submit a scheme for destroying the 
practical monopoly which the National Telephone 
Company held by virtue of its trunk lines. A local 
telephone exchange that had not access to all other 
local exchanges, by means of the trunk wires, would 
be "only half useful," and therefore no local exchanges 
could be established in competition with the National 
Telephone Company's local exchanges. Therefore the 
Government proposed to establish, "in one sense," "free 
trade" 1 in the local telephone business, by acquiring 
the trunk lines and throwing them open to all local 
companies. The Government proposed also that the 
local authorities should exercise supervision over the 
telephone business in the local areas, and should apply 

1 That is competition. 
15 



226 THE TELEPHONE IN GREAT BRITAIN 

to the Postmaster General for relief from unsatisfactory 
service in the local areas. The Government had power 
to afford relief, for it had full power to authorize com- 
petition in any form or any place. That policy would 
combine "the simplicity of Government control with 
the expansion which we may expect from private enter- 
prise." Mr. Goschen's words were, in part, as follows : 
"The attitude we should take up toward the Local Au- 
thorities will ensure that when we are assured that a 
town is badly served, competition should be introduced 
by another company, but where a town is sufficiently 
served there should not be all the inconvenience of 
multiplying wires, taking up the streets, and useless ma- 
chinery which is inevitably attendant on the establish- 
ment of competing companies. It has been suggested 
during the course of this discussion that the Local Au- 
thorities might be willing to undertake the telephone 
business themselves. I see nothing contrary to the 
Government policy in such a proposal. If in any par- 
ticular town the telephone system is not established, 
there is no reason why they should not undertake it, 
and communication be established with the rest of the 
country through the trunk lines which would be in the 
hands of the State." In conclusion Mr. Goschen said: 
"I hope the House will consider these fair terms, 
and I venture to hope that they will not pronounce 
against the Government in the sense of asking that the 
Government should take over the whole of this under- 
taking. We have gone a long way in this direction, 



REPORT OF SELECT COMMITTEE, 1898 227 

and we have confidence that we shall be able to work 
this system with great elasticity, though I am fearful 
as to the effect of the telephone on the telegraph 
revenue." 1 

Upon careful reading of the foregoing statement, 
the reader will find that the Government's policy was 
to leave in the hands of the National Telephone Com- 
pany the business of supplying local telephone services, 
holding over the Company the possibility of competi- 
tion should the Company neglect its duties to the public 
or abuse its monopoly position. Potential competition 
was to be established, not actual, all-round competition. 
"Free-trade," that is, competition, was to be established 
"in a sense," were Mr. Goschen's words. To the 
London Economist, 2 Mr. Goschen's statement conveyed 
the meaning that the Government proposed to enter 
into a "co-partnership" with the National Telephone 
Company. 

On the following May 23rd, the Government issued 
a Treasury Minute enunciating its policy with regard 
to the telephone. Among the other things, that docu- 
ment said : "As to fresh licenses, no further licenses 
for the whole country will be granted, and even for a 
license to establish an exchange in a particular town, 
nc application will be entertained unless a formal resolu- 
tion in its favor has been passed by the corporation, or 

1 Hansard's Parliamentary Debates; March 29, 1892; The Times; 
March 30, 1892; and Report from the Select Committee on Tele- 
phones, 1898; q. 974 to 985, Mr. J. C. Lamb, Second Secretary to 
Post Office. 

3 April 2, June 4 and July 30, 1892. 



228 THE TELEPHONE IN GREAT BRITAIN 

other municipal authority, and evidence given that 
there is sufficient capital subscribed to carry out the 
undertaking. In this way competition will not be ex- 
cluded, but a check will be imposed on the formation of 
companies whose sole object it is to force the existing 
licensees to buy them up. But although this is the 
policy which commends itself to Her Majesty's Gov- 
ernment, it must be distinctly understood that, should 
licenses hereafter be granted on other principles, no 
company, now or hereafter to be licensed will have any 
ground to complain of breach of contract or want of 
good faith on the part of the Postmaster General." 

Mr. J. C. Lamb, Assistant Secretary to Post Office, 
practically drafted the foregoing Minute; and was 
present at all of the interviews between Mr. Goschen 
and the representatives of the National Telephone Com- 
pany. Before the Select Committee of 1898, Mr. Lamb 
said : "This leads me to say that the National Tele- 
phone Company are more than licensees of the Post- 
master General. It is entirely erroneous to say that 
the Company are mere licensees. Under the original 
license the Company were only licensees of the Post- 
master General, and the Post Office stood, cap in hand, 
merely to take a tax ; but now the Post Office has en- 
tered into a working agreement with the Company, and 
that is a very important matter. The Company are no 
longer its licensees, but a working agreement has been 
entered into, and in that working agreement provisions 
are made for the cooperation and alliance, and har- 



REPORT OF SELECT COMMITTEE, 1898 229 

monious working which were mentioned both' by 
Ministers in the debates in Parliament and in the 
Treasury Minute. 1 

In June, 1892, the National Telephone Company 
asked the Government to grant the following con- 
cession : "The Post Office will not grant further 
licenses in any area in which there is at the time an 
existing exchange, nor will they open an exchange in 
competition with their licensees unless on complaint 
from, say, one-fourth of the existing subscribers, or 
from the local authority, as to the unsatisfactory char- 
acter of the existing service. On such complaint being 
made, a local inquiry to be held by an independent 
person appointed by the Post Office, and if the com- 
plaints are held to be well founded, the existing licensees 
tc be entitled to reasonable opportunity of improving 
the service and removing the cause of complaint, and 
only after failure to do this is an additional license 
tc be granted. In the event of the Post Office opening 
an exchange of its own in competition with the com- 
pany, the royalty payable by the company in that area 
to cease." 2 The Government rejected this request; 
declining to limit its discretion in any way. Subse- 
quently to this refusal, the National Telephone Com- 
pany initialled the Agreement, in August, 1892. In 
February, 1893, tne National Telephone Company made 

1 Report from the Select Committee on Telephones, 1898; q. 557 
and 7807 to 7810. 

2 Report from the Select Committee on Telegraphs Bill, 1892; 
p. 22, Mr. J. S. Forbes, Chairman National Telephone Company. 



230 THE TELEPHONE IN GREAT BRITAIN 

a further effort to get the Post Office to limit its power 
to grant additional licenses, or to establish additional 
Post Office exchanges; it having come to the knowl- 
edge of the Company that "a feeling was springing up 
in certain of the great towns in favor of the municipali- 
zation of the telephone service." The Company wrote 
the Post Office as follows : . . . . "Whilst the Company 
recognize that the Postmaster General cannot in the 
public interest come under a contract which would 
place this Company in the position of absolute mon- 
opolists during the currency of the license, it is sug- 
gested that, before any other license is granted, or any 
further exchange is opened by the Department itself, 
good and sufficient reason should be shown — (a) that 
the Company has not already provided the service in 
the area in question, and is unwilling to do so; (b) 
that the service provided is bad and inefficient, and that 
the Company is not ready and willing to, or does not, 
improve it. With this expression of the views of the 
Company, I am now instructed to offer the following 
suggestion as to a solution of the questions which have 
recently been raised, viz., that it be made a condition 
of the agreement that before any new license is granted, 
or before any new exchange is opened by the Post 
Office, in any area in which the Post Office has not at 
present an exchange, the Company shall have an oppor- 
tunity of being and shall be entitled to be heard by the 
Postmaster General, and I am further instructed to say 
that, in making this suggestion, it is not intended that 



REPORT OF SELECT COMMITTEE, 1898 231 

the absolute discretion of the Postmaster General to 
grant any license, or to himself open any exchange, is 
to be in the slightest degree fettered or interfered with. 
The Company, on the contrary, if given the oppor- 
tunity of being heard, are prepared to rely upon his 
fairness and impartiality, and to abide loyally by his 
decision." The Post Office replied that it was unable 
to accept the suggestion ; but that while the Postmaster 
General "must preserve intact the freedom of the de- 
partment, he does not wish it to be inferred that he 
would deny himself the advantage of communicating 
with the Company on occasions when, in his opinion, 
it would be advantageous to obtain a statement of their 
views." 1 

The failure of the National Telephone Company to 
obtain any written concession whatever in the fore- 
going matter, was the reason why the Company to the 
end remained an unwilling party 2 to the transaction 
commonly denominated the purchase by the Govern- 
ment of the Company's trunk lines. 

Before the Select Committee of 1898, Mr. J. S. 
Forbes, Chairman National Telephone Company, testi- 
fied that the Company, upon his advice, consented to 
the sale of its trunk lines, solely upon the declaration 
of policy made in the House of Commons on March 29, 

1 Report from the Select Committee on Telephones, 1898,^.8596 
and following, and 8684 to 8686, Mr. J. C. Lamb, Second Secretary 
to Post Office. 

2 Report from the Select Committee on Telephones, 1898; q. 610 
to 613, and 892 to 899, Mr. J. C. Lamb, Second Secretary to Post 
Office. 



232 THE TELEPHONE IN GREAT BRITAIN 

Mr. Forbes' 1 892, by Mr. G. J. Goschen, Chancellor 

Contention f the Exchequer, said declaration of 

policy having been confirmed in several interviews 
which he, Mr. Forbes, had had with Mr. Goschen and 
the Postmaster General, Sir James Fergusson. He 
said: "Well, Mr. Goschen made that speech (and he 
improved that speech very much after [by] correction 
in [for] Hansard's) which distinctly shows that the 
theory of license outside the Telephone Company, al- 
though the license was left to the discretion of the Post 
Office (an absolute discretion), was to be applied only 
in certain specific cases, to wit : if the Telephone Com- 
pany are not in any [particular] area, and people in that 
area want telephonic communication, if the Telephone 
Company do not supply, it will be competent for the 
Postmaster General himself to supply it, or to license 
somebody to supply it. That is No. 1. No 2 was : The 
Postmaster General will not give licenses to areas in 
which the Company are already established if they con- 
duct their business with reasonable efficiency. ... I think 
it is very right to read this [Hansard as distinguished 
from The Times'] edition of the Chancellor of the Ex- 
chequer's speech in the House of Commons, revised 
by himself, and see what it conveys to any reasonable 
mind; and what it conveys to any reasonable mind 
1 had his personal assurance about. ... I ask any hon- 
orable man, any man who would be in the position of an 
arbitrator to determine a question of this sort, what 
value he would attach to a public declaration by [the 



REPORT OF SELECT COMMITTEE, 1898 233 

Ministerial Head of] a department when it was initiat- 
ing a new policy; and when I tell you (as I do) that it 
was only on his confirming those declarations that there 
would be no competition, and that we were to cooperate, 
that I entered into the bargain." Mr. Forbes' position 
was that he would not say it would be a "breach of 
faith" to inaugurate the policy of the unrestricted issue 
of telephone licenses to municipalities, but that such a 
policy would be "not in consistency with the equity of 
that understanding" reached in 1892. 1 

With Mr. Forbes' statement that he had had "private 
assurances" from Mr. Goschen, we must compare the 
statement made in the House of Commons on March 1, 
1895, by Mr. Goschen. Upon that occasion Mr. 
Goschen said that in his capacity as Chancellor of the 
Exchequer he had been present at many of the negotia- 
tions between the Post Office and the National Tele- 
phone Company, and that the representatives of the 
Government on all those occasions had taken care "that 
in no single respect should the rights of the Govern- 
ment be interfered with, or the possibility of competi- 
tion, when necessary, lost. ..." There had been no 
"'private promises to the Company that the Government 
could not grant licenses if it wished." 2 

Before the Select Committee of 1898 Mr. Goschen 
stated that it would have been impossible for him "to 
lock up the discretion of the Treasury" in any of the 

Report from the Select Committee on Telephones, 1898^.6140, 
6141, 6175, 6299, 6287 et passim. 

2 Hansard's Parliamentary Debates; March 1, 1895, p. 229. 



234 THE TELEPHONE IN GREAT BRITAIN 

interviews between himself and Mr. Forbes in 1892. 
Thereupon the Chairman of the Committee, Mr. R. W. 
Hanbury, queried : "And, therefore, if the Agreement 
left it entirely free for the Postmaster General to start 
competition in his own discretion, there was nothing 
said in any interview between you and Mr. Forbes 
which would prevent the Postmaster General from 
exercising his discretion to the fullest extent?" Mr. 
Goschen replied : "Well, that is going rather far, I think, 
Mr. Forbes refers to my speech of the 29th March, 
1892, I will read this passage to the Committee (which 
has been before it before) in my speech, which I think 
probably states my policy more clearly than anything 
I could remember, because that was my intention at that 
time. I say : 'Therefore the licensees have been warned 
that the Government retained the power in their hands. 
He thought that it would be evasive of the spirit of the 
license if during the continuance of the license they 
took the whole of the telephonic arrangements into 
their hands, to the detriment of those who on the faith 
of the licenses had been extending the system up to the 
present moment;' and my recollection and my inter- 
pretation of that would be that if we had, immediately 
after the Agreement had been signed, exercised our dis- 
cretion by entering into competition throughout the 
country, that would be against the spirit and against 
the policy which we intended. On the other hand, our 
discretion is not tied in any way. The answer that I 
give is in reply to what you suggest ; I do not wish it 



REPORT OF SELECT COMMITTEE, 1898 235 

to be pushed too far ; the Post Office must retain their 
entire discretion, and I do not think it would be against 
that discretion to raise such competition in the course 
of time as was clearly contemplated, I take it, both in 
the Agreement and in the Treasury Minute. But I 
think it would have been a surprise to the Company and 
that they would have considered it hard usage if the 
moment we got this Agreement signed we had estab- 
lished competition against them in every direction." 
"That is immediately ?" "Yes, immediately." "That 
would mean taking the whole of the local exchanges 
into the hands of the Post Office?" "Yes." "But 
would that have prevented competition in any particu- 
lar locality?" "I should say not." "Then you con- 
sider that it would not be fair to extend the principle, 
which you had applied, to a certain extent, by taking 
over the trunk wire, to the whole of the local ex- 
changes?" "Yes, I presume that was the meaning." 
Shortly afterward Mr. Cawley queried : "I only want 
just to put it in this way : you would have thought that 
had you used the trunk lines to immediately start com- 
petition by the Post Office all over the country you 
would have been guilty then of being a little sharp?" 
"Sharp; that is the word, yes." To the further query: 
"And nothing else; nothing further?" Mr. Goschen 
replied : "No, I must be perfectly candid in that way ; 
I think they would have had cause to complain if we 
had done so without having warned them beforehand, 
that that is what we should do. It was not our policy 



236 THE TELEPHONE IN GREAT BRITAIN 

at the time to take these immediate steps ; I want to be 
quite candid with the Committee so far as my memory 
goes." 1 

The foregoing documentary evidence shows very 
clearly that the Government persistently refused to give 
the National Telephone Company any statutory con- 
cession, or even any written or spoken concession which 
would have curtailed in any way the legal power of 
Parliament to adopt at any time any telephone policy 
that it might wish to adopt. But it shows equally 
clearly that neither the Government nor Parliament 
could in good faith have followed up the getting pos- 
session of the Company's trunk lines by inaugurating 
immediately all-round competition with the Company, 
either by granting a telephone license to every munici- 
pality that might apply for one, or by establishing 
everywhere local Post Office telephone exchanges. The 
question therefore arises whether Parliament and the 
Government were free to do in 1898 what they were 
not free to do in 1892, the National Telephone Com- 
pany having been guilty of no failure of duty or viola- 
tion of power in the period from 1892 to 1898. To 
the writer it seems perfectly clear that there can be only 
one answer to that question, and that that answer is 
that neither Parliament nor the Government were free 
to inaugurate general competition in 1898. 

The Select Committee reported that the Post Office 



1 Report from the Select Committee on Telephones, 1898 ; q. 7210 
to 7228. 



REPORT OF SELECT COMMITTEE, 1898 237 

was not prevented "either by legal agreement or by good 
faith from limiting or ending the monopoly of the 
Company. " The Committee, in arguing this question, 
contented itself with quoting only one of the answers 
given by the most important witness, namely : Mr. 
Goschen. Sir James Woodhouse, a prominent Parlia- 
mentary champion of the demands made upon Parlia- 
ment from time to time by the Association of 
Municipal Corporations, put the last question that was 
addressed to Mr. Goschen. It was : "I should like to 
put the same question to you as I put to Mr. Forbes : 
Would the granting by the Post Office of a license to a 
municipality now be in your opinion an evasion of the 
spirit of the Agreement entered into with the National 
Telephone Company ?" Mr. Goschen's answer was : 
"I cannot think that it would ; I think there are words 
which distinctly contemplate it in the very speech to 
which attention is called." It is clear that the question 
whether the Post Office was free to grant a license to 
a municipality was a question very different from the 
question at issue, namely, whether the Post Office was 
free to offer to grant licenses to every one of the 1334 
local authorities in the United Kingdom. Therefore 
Mr. Goschen's answer to Sir James Woodhouse's ques- 
tion detracted nothing from, and was in no way incon- 
sistent with Mr. Goschen's leading statement, to-wit, 
that the Post Office was free to inaugurate "such 
competition in the course of time as was clearly con- 
templated, I take it, both in the Agreement and in the 



238 THE TELEPHONE IN GREAT BRITAIN 

Treasury Minute. But I think it would have been a 
surprise to the Company and that they would have con- 
sidered it hard usage if the moment we got this Agree- 
ment signed we had established competition against 
them in every direction.'' Nor was Mr. Goschen's 
answer to Sir James Woodhouse in any way inconsis- 
tent with his previous reply to the Chairman of the 
Committee that it was "going rather far" to infer from 
the fact that "the Agreement left it entirely free for the 
Postmaster General to start competition in his own dis- 
cretion," that there was nothing said in any of the 
interviews between [him] and Mr. Forbes which would 
prevent the Postmaster General from exercising his 
discretion to the fullest extent. 

The Conservative Salisbury Ministry accepted the 
Report of the Select Committee of 1898. That fact 
is the more remarkable since the Conservative Party, 
under the leadership of the Marquis of Salisbury, had 
enacted the legislation of 1892. In 1905, another 
Conservative Ministry, that of Mr. A. J. Balfour, re- 
pealed the legislation which was enacted in 1899 in 
consequence of the Select Committee Report of 1898. 
In the meantime, however, the Report of 1898 and the 
legislation of 1899, had knocked 25 per cent, off the 
market value of the National Telephone Company's 
securities. 



CHAPTER XV 

PARLIAMENT AUTHORIZES ALL-ROUND COMPETI- 
TION WITH THE NATIONAL TELEPHONE 
COMPANY 

Mr. R. W. Hanbury, Financial Secretary and Representative 
of the Postmaster General, speaks of the National Telephone 
Company as if it were a public enemy, if not a criminal. The 
Telegraph Act, 1899, authorizes unfair competition with the Na- 
tional Telephone Company. It knocks fully 25 per cent, off the 
market value of the National Telephone Company's securities ; and 
it makes Mr. Hanbury a Member of the Cabinet. In all other 
respects it is an utter failure. It is partially abandoned in 1901, 
and completely abandoned in 1905. The reason for the complete 
failure of the Telegraph Act, 1899, is the conservatism of the 
local authorities, and the inability of adjoining local authorities 
to cooperate. 

Shortly after the Select Committee of 1898 had 
reported, the Government announced that it was ready 
to grant telephone licenses to any local authority; but 
that legislation would be required to authorize local 
authorities to raise money on the security of the taxes 
for the purpose of building telephone plants. Early 
All-round m March, 1 899, the House of Com- 

Competition mons, at the request of the Govern- 

Authorized ment> ; nstructed the Financial Secre- 

tary of the Treasury and the Chancellor of the 
Exchequer to bring in a Bill "to enable local authori- 

239 



240 THE TELEPHONE IN GREAT BRITAIN 

ties to raise or apply money for telephonic purposes," 
and "to authorize the issue out of the Consolidated Fund 
of a sum not exceeding $10,000,000 for making fur- 
ther provision for the improvement of telephonic com- 
munication." One-half of the aforesaid sum the Post 
Office was to spend in establishing a telephone plant in 
Metropolitan London, said plant to compete actively 
with the National Telephone Company. The other 
half the Post Office was to use partly for the purpose 
of competing actively with the Company in those pro- 
vincial places in which the Post Office had been main- 
taining moribund telephone exchanges, partly for the 
purpose of establishing Post Office telephone exchanges 
in those districts which were not sufficiently populous 
to maintain independent local plants. 1 The speech 
made by Mr. Hanbury in moving the First Reading 
Mr.Hanbury's of the Telegraph . Bill, led Sir James 
First Reading Fergusson, a Director of the National 
Speech Telephone Company since 1896, and 

Postmaster General in 1891-92, to reply as follows: 
"The Right Honorable Gentleman has treated the Na- 
tional Telephone Company as a criminal to some extent, 
and as an enemy of the public, and especially of the 
Post Office. From the time that the Agreement was 
obtained in 1892, and especially since it was completed 
in 1896, until the Right Honorable Gentleman himself 
took office, the Post Office and the National Telephone 

1 Hansard's Parliamentary Debates; Mr. Hanbury, March 6, June 
20, and July 24, 1899; and the Duke of Norfolk, Postmaster General, 
August 3, 1899. 



ALL-ROUND COMPETITION AUTHORIZED 241 

Company had been in the most complete harmony; 
they had been 'cooperating together' in the words of 
the Treasury Minute, and there had been no sort of 
difference between them. The National Telephone 
Company sometimes thought that the Post Office was 
hard upon them, but no allegation was made on the 
part of the Post Office that the National Telephone 
Company was not doing its duty. And, in fact, before 
the Committee of 1895, the scientific advisers of the 
Postmaster General told the Committee that the Com- 
pany was doing its work extremely well, that the sys- 
tem was the very best that could be introduced, and 
that they were pushing the business as fast as they 
could .... I should be ashamed to belong to any Com- 
pany against which any just charges of unfair dealing 
could be brought; but the National Telephone Com- 
pany, which has the greatest ability at its command, 
has endeavored to make the telephone system of this 
country as good as possible, and I am only sorry that a 
Minister should treat it with the hostility which the 
Right Honorable Gentleman has shown." 1 

On June 20, Mr. Hanbury moved the Second Read- 
ing of the Telegraph Bill. He began his speech with 

'Mr. Hanbury's the statement tnat tne National Tele- 
Second Reading phone Company again 2 had lodged a 
Speech Bin asking for way . leaves . He added 

that he was convinced the House was not prepared to 

1 Hansard's Parliamentary Debates; March 6, 1899, p. 1393. 

2 That is, for the sixth time. The previous bills had been 
lodged in 1884, 1885, 1888, 1892 and 1893. 

16 



242 THE TELEPHONE IN GREAT BRITAIN 

grant them. In support of his opinion he cited reso- 
lutions recently passed by the Association of Municipal 
Corporations and the London County Council, request- 
ing Members of Parliament to oppose any grant of 
power to the National Telephone Company. On the 
other hand, he said, it was clear that the public must 
have . better and more extensive telephone facilities. 
Therefore either the Post Office or the local authorities, 
supplemented by small local companies, must take up 
the work of supplying telephone service. He added 
that it was quite possible that the local authorities, 
though unwilling "to grant way-leaves to a rich and 
powerful company, might be willing to grant them to 
small companies over which they would have more 
control. " 3 The first of those two remedies was out 
of the question, for two reasons. In the first place, 
purchase at the present moment meant purchase "at 
accommodation price, of a monopoly that ought never 
to have been allowed to grow up. It meant that the 
State would have to buy, as a going concern [i. e., at 
the market value] , a monopoly which will fall into our 
laps in 191 1." In the second place, the Government 
was opposed to nationalization of the telephones be- 
cause of the great political and financial danger inherent 
in any further increase of the number of civil servants. 
The Post Office already was employing 160,000 peo- 

8 Compare Hansard's Parliamentary Debates; July 24, 1899. Mr. 
H. Kimber, M. P. for Wandsworth, states that many provincial 
towns had informed the Postmaster General that they desired that 
the local telephone services be in the hands of small companies who 
should obtain their way-leaves from the local authorities. 



ALL-ROUND COMPETITION AUTHORIZED 243 

pie; an efficient system of State telephones would add 
to that number some 20,000 or 30,000 people, whom 
the Government would have to pay materially higher 
wages than the National Telephone Company was pay- 
ing. Upon this latter subject, Mr. Hanbury 's con- 
cluding words were : "We do not regard it as by any 
means a certainty that 191 1 will see the end of the 
licenses of the new licensees. If nationalization is as 
unpopular with the Government of that day as it is 
with the present Government, municipalities will re- 
tain the service long after 191 1." 

Mr. Hanbury did not content, himself with the fore- 
going statements, but went on to make numerous 

TT , , charges and insinuations which were 
Mr. Hanbury s 
Indictment of as unfounded in fact as they were 

National Tele- damaging to the National Telephone 
phone Company ~ „ „ . , ■. 

Company, as well as offensive to the 

honorable body of men who had taken up the telephone 

when it was commonly deemed a mere scientific toy, 

and had brought it to such a point of general use as 

popular prejudice and the great game of municipal and 

national politics had permitted. 

Mr. Hanbury's first charge against the National 

Telephone Company was that the "figures with regard 

to telephonic communication are positively alarming." 

In support of this statement Mr. Hanbury said there 

was in England one telephone for each 636 people, 

whereas there was: in Switzerland, one telephone for 

each 100 people; in Germany, one telephone for each 



244 THE TELEPHONE IN GREAT BRITAIN 

149 people; in Norway and Sweden, one telephone for 
each 144 or 147 people; and in the United States, one 
telephone for each 132 people. At the time of this 
statement, there was in England one telephone for each 
308 people. 1 Mr. Hanbury made the foregoing inac- 
curate statement in the House of Commons on March 
6, and he repeated it on June 20, though Mr. Game's 
correction of the inaccuracy had been published in The 
Electrician of May 12. 

Mr. Hanbury next said that the public wanted a 
general service, but the National Telephone Company 
A General na d picked out only the best spots. 

Service Wanted "Being a private company they natu- 

rally consulted their own interests .... We have been 
told by the Chairman of the Company that they would 
not extend their service beyond [after] 1904, and that 
it could not be expected that a private company should 
extend telephones over the whole kingdom." This 
statement was in direct conflict with the testimony 
given before the Select Committee of 1898 by Mr. 
Lamb, Assistant Secretary to Post Office; by Mr. Ar- 
nold Morley, Postmaster General from 1892 to 1895; 
and by Mr. W. H. Preece, Engineer-in-Chief to Post 
Office. Moreover, on March 6, 1899, Sir James Fer- 
gusson had stated in the House of Commons, in reply 
to Mr. Hanbury, that "wherever twelve subscribers 
could be obtained, the company opened an exchange/' 2 

1 The Electrician; May 12, 1899. 

2 Hansard's Parliamentary Debates; March 6, 1899, p. 1399. 



ALL-ROUND COMPETITION AUTHORIZED 245 

The statement that "it could not be expected that a 
private company should extend telephones over the 
whole kingdom," was not made by the Chairman of the 
National Telephone Company, either before the Select 
Committee of 1895, or before the Select Committee of 
1898, or in the course of the Glasgow Inquiry of 1897. 

Mr. Hanbury next said : "I am bound to say there is 
one other thing that impresses me very much as to the 
Undue Political necessity of regulating, at any rate, a 
Influence Alleged monopoly like this. The indirect in- 
fluence which a big company like this can bring to bear, 
and is bringing to bear, is enormous ; and it is difficult 
to say where public policy begins and private interest 
ends, when all kinds of preferences and trusteeships can 
be put into men's hands. I say, this constitutes one 
of the greatest arguments against such an enormous 
monopoly as this, which has such direct and indirect 
power." 

If it be granted, for argument sake, that this state- 
ment was justified by the facts, it still remains true that 
Mr. Hanbury's proposed remedy, namely municipaliza- 
tion of the telephone service, would but transfer to the 
Association of Municipal Corporations the political in- 
fluence which it was proposed to wrest 

Justice on As- from the National Telephone Company. 
sociation of Lord Alverstone, Lord Chief Justice of 

Municipal England, on the strength of fifteen 

Corporations 

years' experience in the House of Com- 
mons, has said of the Association of Municipal 



246 THE TELEPHONE IN GREAT BRITAIN 

Corporations, that "only those who had been in the 
House knew the really almost unfair weight and 
power which municipal bodies had in the House, be- 
cause, not only did the local member not dare to resist 
the wishes of his local friends, but all the municipal 
corporations acted together, and when there had been 
an attempt to get statutory powers for private enter- 
prise which was thought to conflict with the possibil- 
ity of municipal trading in a particular place, not only 
was the influence of the municipality in that particular 
place set to work, but the influence, through the Muni- 
cipal Corporations Association, of many other municipal 
bodies which had nothing whatever to do with the par- 
ticular scheme. Without fear of contradiction he 
could say the question under those circumstances was 
not fairly determined upon its merits, and was not 
fairly discussed. Being no longer in politics he had 
no right to express any opinion upon the merits of the 
case [i. e., municipal trading], beyond saying that it 
was a question of such vast importance that it ought 
to be thoroughly understood and tested upon its merits 
and not dealt with by any considerations of popularity, 
public sentiment, or anything of that kind." 1 

Mr. Dixon H. Davies recently has stated that the 
Municipal Corporations were said to have spent $2,- 
000,000 in the period from 1892 to 1898 in opposing 
private companies' applications for charters. That 
"the potentiality of such opposition was in itself a very 

1 Journal of the Society of Arts; January 30, 1903. 



ALL-ROUND COMPETITION AUTHORIZED 247 

serious hamper upon adventure." It rendered the ap- 
plication for a charter "a very precarious speculation." 

Again, Lord Avebury recently has said : "It is ob- 
vious that the work [of administering the great trad- 
ing ventures of the large cities] is not really done by 
the [City] Council, it is not even done by the Com- 
mittees; it is really done by the staff. The London 
County Council is the most striking case, but in all our 
great municipalities we are building up a gigantic 
bureaucracy. They are welded into a great organiza- 
tion, the Municipal Corporations Association, which, 
as we shall see in a subsequent chapter, has, with the 
best intentions, I fully admit, already done much to 
hamper and impede the progress of the nation." 1 

In short, the remedy for such evil influence as Mr. 
Hanbury alleged was being exerted by the National 
Telephone Company, lies not in the legislative limita- 
tion of the power and the scope of the great trading 
corporations, but in the upbuilding of a public opinion 
of such intelligence and integrity as shall prevent the 
abuse of power by any aggregation of capital or of 
men, L? that aggregation a great trading company, or 
a combination of municipal statesmen and municipal 
employees, such as is the Association of Municipal Cor- 
porations, before whom has bowed more than one Min- 
istry and more than one Parliament. 

Mr. Hanbury next stated that Parliament would be 

1 Lord Avebury: On Municipal and National Trading; p. 32. 
Lord Avebury has been Vice-Chairman and Chairman of the London 
County Council. 



248 THE TELEPHONE IN GREAT BRITAIN 

able to impose on the new licensees — local authorities, 
or small local companies — conditions which could not 
Statutory be imposed on the National Telephone 

Obligations Company, to-wit, the obligation to 

supply and the prohibition of undue preference. This 
statement was contradicted by the fact that the Na- 
tional Telephone Company at that very moment for 
the sixth time was applying to Parliament for statu- 
tory powers under the offer to come under all the usual 
obligations, namely : obligation to supply, prohibition 
of undue preference and the imposition of maximum 
charges. 

Mr. Hanbury next stated that the possibility of com- 
petition from local authorities and small companies 
"might have the result of wakening up the National 
Company to give a better service." The charge im- 
plied in this statement was contradicted by Mr. Han- 
bury's own words, that wherever the National Tele- 
phone Company had obtained way-leaves, they had 
given "a physically effective service." It was contra- 
dicted also by the testimony given before the Select 
Committee of 1895 by Mr. W. H. Preece, Engineer-in 
Chief to Post Office, namely, that the National Tele- 
phone Company were renovating their entire plant and 
doing all they could to make their service "as good as 
it can be made." 1 

Mr. Hanbury next stated that a large part of the 

1 Report from the Select Committee on the Telephone Service, 
1895 ; q- 2932, 2816, 2973 to 2975 and 5360. 



ALL-ROUND COMPETITION AUTHORIZED 249 

opposition to the Government's Bill came from Liver- 
pool and Nottingham, which cities had made very fav- 
orable contracts with the National Telephone Company. 
But he did not propose that those large cities should 
stand in the way of the smaller cities "not so well able 
to fight their own battles." This statement ignored 
the fact that the National Telephone Company had 
stated before the Select Committee of 1898 that it was 
ready to make with any local authority contracts similar 
to the Liverpool contract. It ignored also the fact that 
one of the earliest contracts had been made with Wind- 
sor, a town of only 14,000 inhabitants. Finally, it 
ignored the fact that the Company already had made 
contracts with 340 local authorities. 1 

Mr. Hanbury next stated that "it came out very 
clearly in evidence before the Select Committee, of 
which I was Chairman, that the wages of the Com- 
pany's operatives are excessively low. We found that 
out by experience, also, when we took over the opera- 
tors on the [Company's] trunk wires, and we had to 
raise their wages by over 40 per cent." Before the 
Committee in question Mr. W. H. Preece, Engineer- 
in-Chief to Post Office, had testified that the increase 
in question had been about 20 per cent. ; and Mr. J. S. 
Forbes, Chairman National Telephone Company had 
testified : "We take a liberal interpretation of the mar- 
ket value of the article, and it is sad to say that for 



1 The Electrician; May 12, 1899; and Hansard's Parliamentary 
Debates; June 20, 1899, p. 152, Mr. MeArthur, M. P. for Liverpool. 



250 THE TELEPHONE IN GREAT BRITAIN 

everybody we employ at our wages (which are not 
illiberal), we can have a dozen people to fill a vacancy." 1 

When Mr. Hanbury made the damaging statement 
that the National Company's wages were "excessively 
low," he stood on record in Hansard as having made 
repeatedly the statement that the wages paid by the 
Post Office were determined largely by the political 
pressure exerted by the postal and telegraph employees, 
and that it might become necessary to disfranchise those 
employees. And in January, 1902, when Mr. Han- 
bury was under the necessity of defending the tariffs 
made by the Post Office Telephone Exchanges in 
Metropolitan London, he said : "I am quite convinced 
that in the Post Office [Telephone] Service we are 
paying for this class of labor a great deal more than 
we have any necessity to pay." 2 

No adequate reply was made to the numerous in- 
accurate and damaging statements made by Mr. Han- 
Mr. Hanbury bury upon the Second Reading Motion 
not Answered f the Telegraph Bill. The Members 
of the House who were in a position to make effective 
replies were financially interested in the National Tele- 
phone Company, and the practice of the House forbade 
their defending the Company at that stage of the dis- 
cussion. But on the occasion of the First Reading of 
the Bill, early in March, Sir James Fergusson pointed 

1 Report from the Select Committee on Telephones, 1898 ; q. 4737 
to 4741, Mr. W. H. Preece; and q. 8818, Mr. J. S. Forbes. 

2 Hansard's Parliamentary Debates; January 27, 1902, p. 1032, 
Mr. Hanbury, President Board of Agriculture. 



ALL-ROUND COMPETITION AUTHORIZED 251 

out many of the inaccurate statements made by Mr. 
Hanbury. But the Financial Secretary ignored Sir 
James Fergusson's speech, and repeated many of his 
objectionable statements in his Second Reading speech. 
Sir James Joicey, late chief proprietor of the New- 
castle Daily Leader, followed Mr. Hanbury. He ques- 
tioned the judgment of Mr. Hanbury on the question 
whether the municipalities would eventually give way- 
leaves. He said : "No doubt there might be one or two 
municipalities who would object. There are munici- 
palities who object to everything where the public con- 
venience is concerned. As a rule, municipalities look 
after the interest of the ratepayers in their own locali- 
ties excellently, but wherever the public interest clashes 
with their own, they support their own as against that 
of the public "* 

The Telegraph Act, 1899, 2 provided the Post Office 
with $10,000,000 to be spent in beginning the work of 
establishing at its pleasure Post Office telephone plants ; 
The Telegraph at tne same time it obliged the National 
Act, 1899 Telephone Company to obtain the con- 

sent of the Postmaster General before establishing ex- 
changes in any area in which it had not exchanges in 
operation on the passage of the Act. It gives all local 
authorities the right to raise money for the purpose of 
establishing telephone exchanges, and it authorizes the 

1 Hansard's Parliamentary Debates; June 20, 1899, p. 118. 

2 62 and 63 Victoriae, c. 38. 



252 THE TELEPHONE IN GREAT BRITAIN 

Postmaster General, with the consent of the local au- 
thority concerned, to issue licenses to local companies. 
In those areas in which the Post Office itself shall 
establish competing exchanges, the license of the Na- 
tional Telephone Company will not be extended beyond 
191 1. But if a license shall be granted to a municipal- 
ity or a local company, and shall be made to run beyond 
191 1, and a competing exchange shall actually be es- 
tablished, the license of the National Telephone Com- 
pany, for the area affected, shall be extended for a 
similar period, provided that the National Telephone 
Company shall abandon its power to show preference 
between subscriber and subscriber, shall agree to keep 
its charges between the maxima 1 and minima pre- 
scribed by the Postmaster General, and shall not, as a 
condition of giving service, require from any person 
the grant of any facility except for the purpose of sup- 
plying telephonic communication to that person. Fur- 
thermore, if the National Telephone Company's license 
for any local area shall be extended for as much as 

Provision for ei §" ht ^ earS ' the Com P an Y wI11 be bound, 

Inter-com- under certain conditions, to grant inter- 

munkation communication between its subscribers 

and its competitor's subscribers. The conditions are: 
When the subscribers of the competing licensee equal 
or exceed in number one-fourth of those of the Com- 

1 On July 22, 1899, the Post Office had bound itself not to pre- 
scribe any maximum rates for unlimited user that should go below 
the National Telephone Company's existing maximum charges. Re- 
port from the Select Committee on Post Office (Telephone Agree- 
ment), 1905 ; p. 263. 



ALL-ROUND COMPETITION AUTHORIZED 253 

pany, in the competing licensee's area, or number 500, 
mutual inter-communication shall be afforded within 
the area of the competing licensee. Such intercom- 
munication is termed "restricted inter-communication." 
When the Company's exchange area exceeds in extent 
the competing licensee's area, then when the subscrib- 
ers to the competing licensee equal or exceed in number 
one-fourth of those of the Company throughout the 
Company's whole exchange area, mutual inter-com- 
munication shall be afforded throughout the whole ex- 
change area of the Company. Such inter-communica- 
tion is to be called "unrestricted inter-communication." 
Restricted and unrestricted inter-communication may 
exist side by side on different terms. The Company 
may charge as follows for restricted inter-communica- 
tion : three cents per call when the competing licensee's 
subscribers number 500, but are less than one-fourth 
of the Company's subscribers ; two cents per call when 
the competing licensee's subscribers are between one- 
fourth and one-half of the Company's subscribers; nil, 
when the competing licensee's subscribers equal one- 
half the number of the Company's subscribers. In case 
of unrestricted inter-communication, the Company may 
charge : two cents per call when the competing licen- 
see's subscribers are between one-fourth and one-half 
of the Company's subscribers ; nil, when the competing 
licensee's subscribers number one-half of the Com- 
pany's subscribers. 

Wherever, at the date of the enactment of the Tele- 



254 THE TELEPHONE IN GREAT BRITAIN 

graph Act, 1899, the National Telephone Company had 
made terminable contracts with local authorities for 
underground way-leaves, those contracts shall be ex- 
tended during the life of the license of the competing 
licensee, provided the Company shall agree to abandon 
the power to show preference, shall consent to keep its 
charges between maxima and minima prescribed by the 
Postmaster General, and shall not, as a condition of 
giving a service, require from any person the grant of 
any facility except for the purpose of supplying tele- 
phone communication to that person. 

The Postmaster General has power to fix minimum 
and maximum charges for any licensee competing with 
the National Telephone Company. The power to pre- 
scribe minimum charges was conferred on the Post- 
master General in order that he might prevent the 
establishment of unremunerative rates, "since the Gov- 
ernment might on termination of the license want to 
take over the municipal telephone, and would not want 
to take over a non-paying plant." 1 

The undertaking, given by the Post Office to the 
National Company on July 22, 1899, not to prescribe 
for that Company any maxima for unlimited user which 
should be lower than the Company's then existing 
rates, is instructive; for the reason that the agitation 
which the Government hoped to meet by the Telegraph 
Act rested all but completely on the popular assump- 

1 Hansard's Parliamentary Debates; July 24, p. 305, and July 25, 
p. 308, Mr. R. W. Hanbury. 



ALL-ROUND COMPETITION AUTHORIZED 255 

tion that it was possible to telephone Metropolitan 
London on a charge of $50 a year for unlimited user ; 
and to telephone large cities like Glasgow, Manchester 
and Liverpool on a charge of $25 a year for unlimited 
user. 

To those local authorities that had made no contracts 
with the National Telephone Company for way-leaves, 
Unfair Com- the Telegraph Act, 1899, left the power 

petition to establish competing plants while at 

the same time withholding way-leave powers from the 
National Telephone Company. Glasgow and Brigh- 
ton took advantage of that power; they established 
municipal plants with underground wires, at the same 
time denying the National Telephone Company the 
power to put its wires under the ground. 1 Prominent 
Glasgow statesmen publicly announced that it was the 
desire of Glasgow to destroy the National Telephone 
Company's property in Glasgow. Brighton refused 
the National Telephone Company way-leaves, partly 
because the Company refused to lower its tariff in 
Brighton; partly because Brighton believed that the 
Post Office would buy its plant, on the expiry of the 
license, in preference to the Company's plant, since the 
latter would be exclusively an overhead and house-top 
plant. 

Finally, in the Standard License 2 issued to local 

1 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 874, Mr. D. M. Stevenson, Sub-convener Glas- 
gow Telephone Committee; and q. 918, 938 and 943 to 949, Mr. 
Alderman Carden, of Brighton. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; p. 314. 



256 THE TELEPHONE IN GREAT BRITAIN 

authorities under the Telegraph Act, 1899, tne Post- 
master General binds himself to buy, and the local au- 
thority binds itself to sell, at the expiry of the license, 
all of the local authority's plant that shall be "suitable 
for the actual requirements of the telephone service of 
the Post Office within the licensed area." The price 
to be paid is to be the cost of reconstruction, less allow- 
ance for such depreciation as may have taken place in 
consequence of imperfect state of repair. 

The Telegraph Act, 1899, did not put the Postmaster 
General under any obligation to purchase any of the 
plant of the National Telephone Company situated 
within the exchange area of any competing local 
authority ; nor did the Postmaster General subsequently 
assume that obligation when issuing licenses to local 
authorities. On the other hand, Mr. Hanbury, in his 
First Reading speech "quite admitted" that it would 
be unfair to agree to buy the plant of a Municipality 
without making a similar agreement with the National 
Telephone Company. 1 Furthermore, the Treasury 
Minute of May, 1899, na< ^ said: "My Lords [of the 
Treasury] propose that where, within reasonable 
period, bona fide competition between the National 
Telephone Company and any local authority is es- 
tablished in any area where the Company are now 
working, similar treatment [i. e., purchase at value in 
situ] should be applied to so much of the plant of the 

1 Hansard's Parliamentary Debates; March 6, 1899, P- i390> Mr. 
R. W. Hanbury. 



ALL-ROUND COMPETITION AUTHORIZED 257 

Company in such area as existed at the time when such 
competition was inaugurated. Further, if the Com- 
pany within a reasonable period give inter-communica- 
tion in such area between their exchanges and the ex- 
changes of the local authority, on conditions approved 
by the Postmaster General, the purchase will extend (on 
the same terms) to the plant of the Company con- 
structed (with the sanction of the Postmaster General) 
after the commencement of the competition." 2 

In a preceding chapter has been given the evidence, 
pro and con, upon the nice question whether, in the ab- 
sence of any proof that the National Telephone Com- 
pany had failed in its duty as a public service corpora- 
tion, Parliament could authorize all-round competition 
with the National Telephone Company, without violat- 
ing "the equity of the understanding' ' reached in 1892, 
to use the words of Mr. J. S. Forbes, Chairman Na- 
tional Telephone Company. To the writer it seems 
that the National Telephone Company made a com- 
plete argument when it quoted the declaration of policy 
made in the House of Commons by the Chancellor of 
the Exchequer, Mr. Goschen, as the Representative of 
the Government. To the writer the question whether 
there were any "verbal assurances" seems entirely su- 
perfluous. To him it seems idle to say there is any 
"equity" in the Parliamentary repudiation of a policy 
enunciated by a preceding Government at a time when 
that Government was seeking to persuade a trading 

2 The Economist; May 13, 1899. 
17 



258 THE TELEPHONE IN GREAT BRITAIN 

company to enter into a commercial bargain, the merits 
of that bargain turning very largely, if not exclusively, 
on the question of the use that the Government pro- 
posed to make of the position of advantage which it 
contemplated gaining by means x -of that commercial 
bargain. However, leaving aside entirely the question 
of the equity of the authorization of all-round competi- 
tion, there can be no question that the competition ac- 
tually authorized was unfair. It was unfair : to allow 
large cities, such as Glasgow and Brighton, to withhold 
way-leaves from their competitor, the National Tele- 
phone Company; to agree to purchase "at structural 
value" the plants of the competitors of the National 
Telephone Company; and to promise any municipality 
that could acquire a number of subscribers equal to one- 
half the number of subscribers of the National Tele- 
phone Company, the free use of the plant of the Na- 
tional Telephone Company, especially, since the area 
covered by the municipality need not be co-extensive 
with the area covered by the Company. Had any 
municipality become able to take advantage of the pro- 
vision for free intercommunication, it would in effect 
have become a part owner of the National Telephone 
Company's local plant, without having invested a pen- 
ny in that plant. 

The Report of the Select Committee of 1898 and 
the Telegraph Act, 1899, inflicted serious financial 
losses upon the holders of every class of National Tele- 



ALL-ROUND COMPETITION AUTHORIZED 259 

phone Company securities. The Select Committee re- 
ported on August 9, 1898. On November 30, 1898, 

. . . the market value of the Company's 
Depreciation of 
National Tele- securities was $29,045,190. The mar- 

phone Company ket value would have been $34,252,765, 
had the several classes of securities sold 
at the average price which they had brought in the three 
years ending with June 30, 1898. 1 Mr. Hanbury in- 
troduced the Telegraph Bill on March 6, 1899, and by 
March 10, the aggregate value of the National Tele- 
phone Company's securities had fallen to a little over 
$26,250,000.2 The destruction of values was lasting; 
in March, 1904, the aggregate market value of the fore- 
going securities was $25,i68,ooo. 3 Such was the 
treatment accorded by Parliament — under pressure 
from the Association of Municipal Corporations, the 
London County Council, the City of London, Glasgow 
and Edinburgh — to a body of men who, in 1878, had 
taken up an invention which the Government had 
deemed itself incompetent to take up because of the 
House of Commons' practice of intervening in the 
business details of the Government's great trading de- 
partment, the Post Office. In the period from April, 
1890, to December, 1898, the capital actually invested 
in plant and patent rights by the foregoing body of 
men, had earned a net revenue of barely nine per cent. 

1 The Economist ; December 3, 1898; and The Times, November 
30, 1898, p. 4, column 2. 

2 The Economist ; March 11, 1899. 

8 The Economist; March 26, 1904; and Report from the Select 
Committee on Post OMce (Telephone Agreement), 1905 ; p. 248. 



260 THE TELEPHONE IN GREAT BRITAIN 

There had not been supported by evidence or argument 
that would be deemed conclusive in any court of law, 
a single one of the charges of violation or neglect of 
duty, that had been made against the National Tele- 
phone Company in the newspaper press, in the House 
of Commons, or before Parliamentary Select Com- 
mittees. 

From the effect of the Telegraph Act, 1899, u P on 
investors in the securities of the National Telephone 
Company, we may turn to its effect upon the statesman 
Mr. Hanbury a wno saw fit to champion the cause of 
Cabinet Minister the Association of Municipal Corpora- 
tions, the London County Council, Glasgow and Edin- 
burgh. In the reorganization of the Salisbury Minis- 
try which followed the general elections of 1900, Mr. 
Hanbury was promoted to the Cabinet, or inner circle 
of the Ministry, being made President of the Board of 
Agriculture. The manner in which he had discharged 
his duties as Representative of the Postmaster General 
in the House of Commons, seems, however, not to have 
commended itself completely to his political superiors. 
He was not given the position for which he was the 
logical candidate, namely the Postmaster-generalship. 
Within the a year after Mr. Hanbury's promotion to 
the Board of Agriculture, the Government abandoned 
the policy of competition with the National Telephone 
Company so far as Metropolitan London was con- 
cerned. And in little more than four years after Mr. 



ALL-ROUND COMPETITION AUTHORIZED 261 

Hanbury's promotion to the Board of Agriculture, the 
Government abandoned as an utter failure the policy 
of municipal competition with the National Telephone 
Company. 

The Telegraph Act, 1899, offered upward of 1300 
local authorities the opportunity to engage in the tele- 
phone business. The Post Office offered every induce- 
ment at its command; as late as February, 1903, it 
Teherafih Act offered the Corporation of Southport 
1899, a "Ludi- a license to run to December 31, 1927. 

crous" Failure About gixty j ocal aut horities took the 

trouble to inquire about the terms on which licenses 
could be obtained; thirteen took out licenses; six mu- 
nicipalities installed telephone exchanges; and of those 
six, one sold out to the National Telephone Company 
after two and one-half years' experience. The Times 1 
summed up the failure of the Act with the words : "A 
ludicrous result to those who can recall much magnifi- 
cent declamation about securing to the public the splen- 
did possibilities of a new discovery." 

The Act excluded the National Telephone Company 
from those areas in which it had not established tele- 
phone exchanges at the time of the enactment. Mr, 
Hanbury's argument was that the experience of Nor- 
way and Sweden proved that the thinly populated dis- 
tricts were profitable ones to work; and that the local 
authorities would take up the business if guaranteed 

1 August 10, 1905. 



262 THE TELEPHONE IN GREAT BRITAIN 

exemption from competition. 1 When he made this 
statement he had before him the testimony of Mr W. 
H. Preece, Engineer-in-Chief to Post Office, to the 
effect that it had been no fault of the National Tele- 
phone Company that the Company had failed to install 
telephone exchanges in the rural districts. The Com- 
pany had canvassed the districts "extremely actively," 
but without success. 2 Mr. Preece's belief that the 
Post Office could build up a system of rural telephones 
by employing the existing rural Post Office and tele- 
graph plant and staff, of course, was no argument that 
the local authorities would find it profitable to install 
exchanges, for the latter could not utilize the Post 
Office buildings and staff. Mr. Hanbury's assumption 
that the local authorities in the rural districts would 
take up the telephone business was completely falsified 
by the facts. Not a single local authority took any 
steps whatever. 

The exclusion of the National Telephone Company 
from the areas in which it had not established itself in 
1899 operated to the detriment of the public in those 

Conservatism areaS - At the tIme ° f the exclusion it 

of the Post was the policy of the Company to es- 

tablish exchanges wherever they could 
get a dozen subscribers at $40 a year each ; and many 
exchanges had been opened in the hope that they would 

1 Hansard's Parliamentary Debates; June 25, p. 346, and July 24, 
1899, p. 138. 

2 Report from the Select Committee on Telephones, 1898; q. 4914 
and 5133. 



ALL-ROUND COMPETITION AUTHORIZED 263 

in due time become profitable. When the Post Office 
was called upon, after 1899, to fill the void created by 
the exclusion of the National Telephone Company and 
the failure of the local authorities to take advantage 
of the opportunities which they had demanded, the Post 
Office acted more conservatively than the National 
Telephone Company had acted. It has always de- 
manded a guarantee before it has consented to open an 
exchange that did not promise to be self-sustaining 
from the moment of opening. To illustrate, in 1905, 
the Post Office declined to modify its demand of a 
guarantee of 25 subscribers at $25* each before open- 
ing an exchange at Buncrana; and in June, 1904, the 
Post Office demanded a guarantee of $725 a year for 
seven years as a condition of extending its trunk line 
from Limerick to Nenagh. 2 Of the 56 Post Office 
Exchanges opened in 1905-6, ten were opened under 
guarantees. In March, 1906, the Post Office had spent 
only $2,020,000 upon exchanges outside of Metropoli- 
tan London, though it had been given $5,000,00 in 
1899. 

There were two reasons for the complete failure of 
the Telegraph Act, 1899. The first was the conserva- 
tism of the local authorities; the second was the in- 
ability of adjoining local authorities to overcome paro- 



a To cover 480 local calls. 

2 Hansard's Parliamentary Debates; June 15, p. 133, and June 
24, 1904, p. 1118; and August 1, 1905, p. 1175, Lord Stanley, Post- 
master General. 



264 THE TELEPHONE IN GREAT BRITAIN 

chial jealousies and to cooperate in the establishment 
of exchanges of a practical size and extent. Upon 

Local Authorities' the first P oint > Mr ' D ' M - Stevenson, 
Conservatism Sub-convener of the Glasgow Tele- 
and Incapacity phone Committee, testified as follows in 
1905. "The Corporations have been waiting to see what 
was the result of the experiments made by the few 
[six] municipalities who operated under licenses. The 
results are still being contested. Part of the Press tell 
us we [Glasgow] are losing money, but we believe we 
are paying our way; but other Corporations want to 
see that the finances are safe before going further; 
latterly 1 they have been face to face with the statement 
that they will not be licensed beyond 191 1, and there- 
fore none of them will look at a license now." 2 

Upon the question of the inability of adjoining local 
authorities to cooperate in the establishment of a "Joint 
Telephone Board/' we have the interesting experience 
of Manchester with the adjoining thirty-one local au- 
thorities included in the National Telephone Company's 
Manchester area of 180 square miles. In 1900, Man- 
chester began efforts to secure the cooperation of the 
adjoining local authorities. In 1902 it lodged a Bill 
in Parliament, which measure was disallowed because 
of the opposition of Eccles and Salford, with popula- 
tions of respectively 34,000 and 221,000. In 1904, 

*As late as February, 1903, the Post Office offered Southport a 
license to run to December 31, 1927. 

a Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 736. 



ALL-ROUND COMPETITION AUTHORIZED 265 

when the Government abandoned the policy of the Act 
of 1899, cooperation had not been secured. 1 

Before the Select Committee of 1898, Mr. H. E. 
Clare, Town Clerk of Liverpool, had testified upon this 
subject of local jealousies. He had said : "I should be 
very sorry myself to have to manage a 
[municipal] telephone system for the 
Corporation of Liverpool, which [system] comprised 
Bootle, Birkenhead and the other local districts." And 
Mr. W. E. L. Gaine, who, before becoming General 
Manager of the National Telephone Company, had 
been for eighteen years Town Clerk at Blackburn [with 
a population of 130,000], had testified that the local 
authorities would not unite to operate conjointly a 
telephone exchange covering a large area. He had 
drawn attention to the fact that at the very moment 
Manchester and the adjoining local authorities were 
quarrelling over the question of interurban tramways. 2 
Mr. J. C. Lamb, Second Secretary to Post Office, was 
on the point of testifying upon the question of local 
jealousy, and the part played by that jealousy in the 
Government's policy of not "entertaining" applications 
from municipalities for licenses, under the administra- 
tion of Mr. Arnold Morley, Postmaster General from 

1 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 1993, Sir Robert Hunter, Solicitor to Post 
Office; q. 933, 1007, 1033 to 1037 and 1068 to 1070, Mr. J. W. 
Southern, Alderman of Manchester; and q. 1231, Mr. H. Plummer, 
Chairman Manchester Telephone Committee. 

2 Report from the Select Committee on Telephones, 1898^.4551, 
Mr. H. E. Clare; and q. 1648, 7075, 7091, 7™6> 7*35 and 7136, Mr. 
W. E. L. Gaine. 



266 THE TELEPHONE IN GREAT BRITAIN 

1892 to 1895, when Mr. Hanbury, Chairman of the 
Committee, interrupted him in the middle of a sen- 
tence, with the words: "I did not ask you that. ..." 
Mr. Lamb replied : "I beg your pardon." 1 

When Mr. Hanbury brought in the Telegraph Bill, 
1899, ne na d before him twenty-nine years of experi- 
ence of municipal ownership of tramways, and seven- 
teen years of experience of the policy of municipal 
ownership of electric lighting plants. The unqualified 
verdict of that experience had been that local author- 
ities were much less enterprising than were companies, 
and that, for all practical purposes, they were unable 
to cooperate for the purpose of serving conjointly a 
number of adjoining districts which the ties of com- 
merce and manufacture had united into a commercial 
and manufacturing unit. 

The Telegraph Act, 1899, was the outcome of a 
series of indefensible onslaughts upon the National 

Telephone Company by Mr. R. W. 

Hanbury, Financial Secretary of the 
Treasury, and of the Report of the Select Committee 
on Telephones, 1898. Neither before the Select Com- 
mittee nor in the House of Commons had the necessity 
of the policy of all-round competition with the National 

1 Report from the Select Committee on Telephones, 1898^.2981 
to 2984. Mr. Lamb : . . . . "it was pointed out to Mr. Arnold Mor- 
ley (and I think he felt it himself at the time) that one of the 
difficulties connected with the giving of municipal licenses was 
that two or more towns" — Mr. Hanbury said : "I did not ask you 
that, . . . ." 



ALL-ROUND COMPETITION AUTHORIZED 267 

Telephone Company been supported by arguments con- 
sistent with the facts of the experience gained under 
the policy of regulated monopoly inaugurated in 1892. 
On the other hand, before the Select Committee of 
1898 some very competent testimony had been given 
to the effect that municipal competition would prove a 
failure because of the conservatism of the municipal- 
ities and the inability of the local authorities to over- 
come parochial jealousies and cooperate. And in the 
House of Commons, one of the few Members who spoke 
against the Bill dwelt upon the fact that it must neces- 
sarily depreciate the securities of the National Tele- 
phone Company. In fact, he alleged that the object of 
the Bill was to depreciate the value of the Company's 
property. 

So far as concerned the upbuilding of a system of 
municipal telephone plants that should make the Gov- 
ernment independent of the National Telephone Com- 
pany in December, 191 1, the Act of 1899 was a 
"ludicrous" failure. It was repealed, so far as Metro- 
politan London was concerned, within a year after Mr. 
Hanbury's passing from control over the Post Office. 
So far as the rest of the country was concerned, it was 
repealed early in 1905. In other respects the Act was 
an unqualified success. It promoted Mr. Hanbury to 
the Presidency of the Board of Agriculture, a post 
which carried with it membership in the Cabinet, or 
inner circle of the Ministry. It also knocked fully 
twenty-five per cent, off the market value of the se- 



268 THE TELEPHONE IN GREAT BRITAIN 

curities of the National Telephone Company. That 
fact, in the opinion of many, was an achievement of 
public benefit, thanks to the manner in which the Na- 
tional Telephone Company had been made the sport of 
the great game of local and national politics. 



CHAPTER XVI 
THE METROPOLITAN LONDON AGREEMENT, 1901 

The Post Office harasses the National Telephone Company 
into granting a request which the Post Office could not make with 
fairness, to-wit, free intercommunication between the Company's 
Metropolitan London subscribers and the subscribers to the Post 
Office Metropolitan London Telephone Exchanges. So far as 
Metropolitan London is concerned, the Government abandons the 
Telegraph Act, 1899, in November, 1901. The Act achieved 
nothing that was not unfair to the Company that could not have 
been attained in 1899 by menas of friendly negotiation with the 
National Telephone Company. 

When the Government was drafting the Telegraph 
Bill, 1899, the National Telephone Company met the 
demands of the Government "most fairly," so that Mr. 
Hanbury himself asked the House of Commons in turn 
to treat the Company with "perfect fairness." 1 The 
Government had made, and the Company had acceded 
to, the request that the Company agree to establish 
intercommunication between its subscribers and the 
subscribers to any competing municipal or company 
telephone system, whenever the Company's license 
should be extended for a period of eight years beyond 
191 1. The Government had not insisted upon the same 
privilege for the future subscribers to its proposed tele- 

1 Hansard's Parliamentary Debates, June 26, 1899. 
269 



270 THE TELEPHONE IN GREAT BRITAIN 

phone systems in Metropolitan London and the prov- 
inces, because it was not prepared to grant the Company 
an extension of license in those areas in which the 
Post Office proposed to compete with the Company. 
The Government evidently believed that it would be 
unfair to ask for intercommunication except on the 
condition of extending the Company's license at least 
eight years. 

But when the Post Office began to canvass for sub- 
scribers to its proposed Metropolitan London Telephone 
Exchanges, it found itself seriously handicapped by 
the fact that it could not promise intercommunication 
with the Metropolitan London subscribers to the Na- 
tional Telephone Company, 1 who, in 1899, numbered 
about 19,000, and were increasing so rapidly that at 
the close of 1901 they numbered between 40,000 and 
50,000. The Government therefore proceeded to 
harass the National Telephone Company into granting 
the intercommunication which the Post Office had no 
legal right to demand. The first step taken by the 
Government was to serve notice on the Company that 
in all cities and places where the Post Office was in 
The Government's competition, or expected to be in com- 
Unwarrantable petition, with the Company, the Post 
Demand office would grant the Company no 

further way-leaves along, across, or under railway 
property. 2 Since the railways intersect in all direc- 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 13, Sir Robert Hunter, Solicitor to Post Office. 
3 The Times; January 24, 1899. 



METROPOLITAN LONDON AGREEMENT 271 

tions Metropolitan London and the larger English 
cities, the Post Office's refusal seriously curtailed the 
Company's power to reach new subscribers and to give 
existing subscribers additional wires. In Metropolitan 
London the Company began to be thus embarrassed 
fully two years before the Post Office opened a tele- 
phone exchange. 1 

In 1892, in the course of the negotiations for the 
purchase of the Company's trunk lines, the Government 
had promised to give the Company rights of way upon 
railway property situated within the cities and towns 
at a "nominal" annual rental of one shilling per mile 
of wire. The only reservation made by the Govern- 
ment was that the rights of way would be given "only 
in cases where the public service will not be damaged." 2 
The meaning of that limitation was that the Post Office 
would not grant way-leaves where the railway prop- 
erty was so taken up with telegraph poles and tele- 
graph wires that it was impossible or inadvisable to 
erect telephone poles to string telephone wires. Pre- 
vious to 1892, the Company had paid the Post Office 

1 Hansard's Parliamentary Debates; August 13, 1899, p. 1247, 
Lord Harris, a Director of the Telephone Company. Who's Who, 
1907. Harris, 4th Baron, George Robert Canning Harris, Lord-in- 
Waiting to Queen Victoria, 1895-1900; Under Secretary for India, 
1885-86; Under Secretary for War, 1886-89; Governor of Bombay, 
1890-95. 

2 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 59 to 62, Mr. J. C. Lamb, Assistant Secretary to Post Office. 
Compare also Treasury Minute, May 23, 1892, section 11: "The 
Post Office, where it can permit telephone companies to use rail- 
ways, canals, or other property over which it has acquired ex- 
clusive rights of way for telegraphs, will charge a nominal sum of 
is. per mile of wire instead of 20s. as at present." 



272 THE TELEPHONE IN GREAT BRITAIN 

an annual way-leave rental of $5 per mile of wire, but 
Unfair m 1892 that rental was reduced to 

Competition $0.25, not only "with the idea of facili- 

tating the operations of the Company, but also as a con- 
cession of some material value which may be set 
against the relinquishment by the Company of their 
trunk wires." 

In March, 1899, Sir James Fergusson, who, as Post- 
master General, had conducted the negotiations of 
1892, said: "Although it was stated in the House in 
1892 by the Chancellor of the Exchequer that the 
grant of way-leaves for a nominal rent was a part of 
the agreement of 1892, we are now told that the Post- 
master General will not grant way-leaves where he is 
competing. . . . This is grossly unfair competition, and 
I am surprised that any Government should be party 
to it. I never thought in 1892 that such an interpreta- 
tion would be put upon the agreement. ,,1 

The Government also gave its moral support to the 
London County Council's policy of refusing to give the 
National Telephone Company underground way-leaves, 
except on conditions which had nothing to do with the 
securing of the comfort and safety of the public as 
users of the streets. Mr. Hanbury himself admitted 
Mr. Hanbury's tnat the Post Office and the London 
Admission County Council were subjecting the 

public to great inconvenience. On April 27, 1900, he 
said: "Under ordinary circumstances, perhaps, the 

1 Hansard's Parliamentary Debates; March 6, 1899, p. 1402. 



METROPOLITAN LONDON AGREEMENT 273 

London County Council would be carrying their con- 
trol over the streets too far to refuse [in refusing] that 
concession to the public convenience, because there could 
be no doubt that a telephone service, whether by the 
State or by a Company, was a great public convenience. 
But the State itself was engaged in constructing a 
system of telephonic communication all over London, 
and it was obvious that in the public interest there 
should be intercommunication between the two 
systems." 1 

In July, 1900, the Post Office, through the Attorney 
General, obtained an Injunction forbidding the Na- 
tional Telephone Company laying wires under the 
streets without the consent of the Postmaster General 
and the London County Council. In the winter of 1900- 
190 1 an unusually heavy snow fall broke down many 
The Public house-top wires, and for weeks inter- 

Convenience rupted the Company's service in some of 

the most important business centers of Metropolitan 
London. Early in 1901, the agent of the Duke of Bed- 
ford's estate demanded such heavy payments for rights 
of way over the house-tops of the estate, that the Na- 
tional Telephone Company served notice on all of the 
tenants of the estate that it would discontinue their 
telephone service. 

In February, 1901, Mr. J. S. Forbes, Chairman 
National Telephone Company, expressed himself as 
follows : "The Company had to live with their com- 

1 The Electrician ; May 4, 1900. 
18 



274 THE TELEPHONE IN GREAT BRITAIN 

petitors, no matter how indignant they might feel as 

to the manner in which they had been treated. He 

believed that no body of men could have been more 

astonished and non-plussed than were the directors 

at the treatment the Company had received from the 

Government. The Board had exhausted argument, 

conciliation, offers to deal on the square with the Post 

Office, to act with them in friendly competition, to 

make the Company auxiliary to them, so that they 

might not rush into the folly of spending millions of 

money in duplicating the telephone service. But to no 

avail." 1 

In November, 1901, the Post Office and the National 

Telephone Company finally came to an understanding. 

The Company consented to the establishment of free 

intercommunication between its subscribers and the 

Postmaster General's subscribers ; and agreed to serve 

„ , , _ , all persons without favor or preference, 

National Tele- 
phone Company as well as not to demand of subscribers 

grants Intercom- exceptional facilities for the carriage 

munication <• • i»,- r 1 • 

of wires as a condition of supplying 

service. Finally, the Company bound itself to charge 
rates identical with those of the Post Office, said rates 
being established by the agreement reached in 1901. 

In return, the Postmaster General agreed to provide 
underground wires for the Company, if he saw no 
objection to such a course, on the merits of each par- 
ticular case. For such wires the Company are to pay 

1 The Times; February 22, 1901. 



METROPOLITAN LONDON AGREEMENT 275 

rent at rates specified in the agreement. At the expira- 
tion of the Company's license in December 31, 1911, 
the Postmaster General will buy the Metropolitan plant 
of the Company at its value in situ, that is, at the price 
of reconstruction less allowance for any imperfect state 
of repair or any depreciation. Provided, that the 
obligation to purchase shall extend only to plant in ex- 
istence in November, 1901, or subsequently brought 
into existence and constructed in accordance with the 
specifications and rules set forth in the agreement. 
Provided also, that the Postmaster General shall have a 
certain right to object to plant as not being suitable 
for his requirements, any difference of opinion between 
him and the Company on that point to be settled by 
arbitration. 1 

The schedule of rates to be charged by the Company 
and the Post Office established a tariff for unlimited 
service, in deference to public opinion, but against the 
judgment of the Postmaster General and the National 
Telephone Company. It was $85 for the first wire, and 
$70 for each additional wire. The National Telephone 
Company's charge had been, on an annual contract, 
$100 for the first wire, and $75 for each additional 
wire; on a five year contract, $85 and $62.25 respec- 
tively. The agreement also established the measured 
service charge in various forms. For an exclusive line, 
it was $25 down, and 2 cents per call to any person 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 13 to 20, Sir Robert Hunter, Solicitor to Post 
Office. 



276 THE TELEPHONE IN GREAT BRITAIN 

within the County of London [area 121 square miles], 
and 4 cents per call to any person outside the County of 
London but within the Metropolitan area, 630 square 
miles. To subscribers located outside London County, 
the charge was $20 down, and 2 cents per call to a 
subscriber on the same exchange, and 4 cents per call 
to a subscriber on any other exchange. In all cases 
the charges for calls must aggregate at least $7.50 a 
year. 1 

In March, 1899, Mr. Hanbury had held out to the 
House of Commons the prospect of an exclusive line 
service on the basis of about $15 down, with a pay- 
ment for each message. 2 

The schedule of charges established by the agree- 
ment of November, 1901, greviously disappointed the 
people who for years had kept up the agitation against 
the National Telephone Company, in the belief that it 
was possible to supply Metropolitan London with tele- 
phone service on the basis of a charge of $50 a year for 
unlimited service. 

On January 2.J, 1902, Sir Joseph Dimsdale, Lord 
Mayor of the City of London, in the House of Com- 
Th c . mons asked for an investigation into 

accepts the the desirability of suspending the agree- 

Agreement ment between the Post Office and the 

National Telephone Company. 3 He took that step in 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; Appendix, p. 247. 

2 Hansard's Parliamentary Debates; March 6, 1899, P- 1388. 
* Hansard's Parliamentary Debates; January 27, 1902, p. 992. 



METROPOLITAN LONDON AGREEMENT 277 

response to a resolution passed by a conference con- 
sisting of delegates from all the municipalities and 
local authorities comprised within the Metropolitan 
London telephone area. Sir Joseph Dimsdale's mo- 
tion was seconded by Mr. Lough, M. P. for Islington, 
who laid stress upon the fact that the charge for un- 
limited user was $85. 

Mr. Austen Chamberlain, Financial Secretary to 
Treasury, replied on behalf of the Government. He 
said that the Government could not engage in cut- 
throat competition in London for the purpose of 
benefiting 6,000,000 people in Metropolitan London 
at the expense of 34,000,000 people outside of London. 
Moreover, if the war had gone to the extreme, the 
Post Office would have been obliged to cancel all of the 
Company's way-leaves across the railways, and that 
would have interrupted the whole telephone service 
of Metropolitan London. He added : "Some people 
talk as if it should have been the first duty [aim] of the 
Post Office to crush this Company out of existence, or 
at any rate, to drive it out of the London area. That 
is not our conception of our duty/' He then proceeded 
to reply to the statement made by Mr. J. W. Benn 1 at 
a meeting of the London County Council, to-wit, that 
the agreement had increased by $1,830,000 the market 
value of the Company's shares. He said : "Mr. Benn 

1 Who's Who, 1906; Benn, J. W., Member London County Council 
since 1889, Vice Chairman in 1895-96, and Chairman in 1904; M. P. 
in 1892, and since 1904; contested Deptford in 1897, and Ber- 
mondsey in 1900 ; is a journalist. 



278 THE TELEPHONE IN GREAT BRITAIN 

was good enough to suggest that we were fools; it 
was left to a reverend gentleman who followed him to 
suggest that we were not only fools but knaves, and 
that although he did not like to suggest felony, our 
conduct appeared to him very like it. I am not pre- 
pared to say that the test of a Stock Exchange quotation 
is always a fair test of value; .... but if such a test 
is to be taken, let it at least be administered with some 
degree of fairness. The full terms of the agreement 
were not before the public until the first of December. 
By the second week in December the shares had fallen 
again to 3.5 ; that is to say, when the full terms of the 
agreement came to be known, the shares were lower 
than they were after the Report of the Select Com- 
mittee of 1898; lower than they were in 1899 when 
competition was officially announced ; lower than they 
were in 1900 when the condition of the streets showed 
to everybody that the Post Office was actually prosecut- 
ing its scheme; lower than they were in August last 
when the Chairman of the Company first announced 
that a satisfactory agreement had been come to. What- 
ever we have done, we have not appreciated the shares 
of the National Telephone Company." 

Sir Joseph Dimsdale's Motion was lost; and the 
agreement remained in force. The Post Office and the 
National Telephone Company divided the field; and 
thereafter the waste arising from duplication of plant, 
and still more, from duplication of staff, was very 
greatly reduced, but not completely eliminated; com- 



METROPOLITAN LONDON AGREEMENT 279 

plete elimination being impossible under the best con- 
ditions. 1 In the spring of 1906, the Post Office had 
32,879 telephones in use in Metropolitan London, 
whereas the National Telephone Company had 72,783 
telephones in use in March, 1905. 2 In March, 1906, 
the Post Office had rented to the National Telephone 
Company 49,250 miles of wire laid in underground 
conduits. 

Free intercommunication between the subscribers to 
the Post Office Telephone Exchange and the National 
Telephone Company's Metropolitan London Exchange 
was established in the spring of 1902. In March, 1905, 
the Company's subscribers outnumbered the Post 
Office's subscribers in the ratio of three to one. Even 
at the present writing, January, 1907, they must out- 
A One-sided number them by more than two to one. 
Bargain The advantage arising from intercom- 

munication, therefore, has been preponderatingly, if 
not wholly, on the side of the Post Office. For that 
advantage the Post Office has given the National 
Telephone Company no pecuniary return ; in fact it has 
given it no return whatever. The withdrawal of the 
Post Office's veto upon the laying of underground 
pipes by the Company, merely was the withdrawal of a 

1 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 320 and 173 to 177, Mr. H. Babington Smith, 
Permanent Secretary to Post Office since 1903. 

2 Fifty-second Report of the Postmaster General, 1906; and Re- 
port from the Select Committee on Post Office (Telephone Agree- 
ment), 1905; Appendix, p. 262. 



280 THE TELEPHONE IN GREAT BRITAIN 

veto which never should have been imposed. More- 
over, that withdrawal was of no advantage to the 
Company, for the veto of the London County Council 
still remains in force. For the underground wires 
which have cost, on an average $85 per mile of double 
wire, 1 the Company pays a rental of $5 per mile of 
double wire, when the Company assumes the cost of 
maintenance, and $10 per mile when the Post Office 
assumes the cost of maintenance. Finally, the agree- 
ment of the Post Office to buy the Company's Metro- 
politan plant at its value in situ at the close of the year 
191 1, is an agreement to buy on terms much more 
advantageous to the Post Office than to the Company. 
Therefore neither the providing of underground wires, 
nor the agreement to purchase the Company's plant 
can be deemed pecuniary considerations given in return 
for the great commercial advantage of free intercom- 
munication. The Government, in 1901, was in the 
position to exact free intercommunication by what one 
almost may term the exercise of brute force, and it 
hesitated not to take full advantage of its position of 
advantage. In July, 1898, Mr. R. W. Hanbury, Finan- 
cial Secretary to the Treasury, and Representative of 
Mr. Hanbury's the Postmaster General in the House of 
Admission Commons, had admitted that it would 

be unfair to demand free intercommunication between 
two telephone systems whose respective subscribers 

1 Report of the Postmaster General on the Post Office, 1905. 



METROPOLITAN LONDON AGREEMENT 281 

were in the ratio of three to one. 1 Finally, in 1905, 
a Select Committee of the House of Commons reported 
in favor of the granting of free intercommunication 
to such municipal telephone exchanges as should be 
established in the years 1905 to 191 1. The Select 
Committee was asking for the municipal telephone ex- 
changes in question no more than the Government had 
taken for the Post Office. But the Government refused 
to accept the Select Committee's recommendation, Lord 
Stanley, Postmaster General, saying: "That meant 
that if the [National Telephone] Company had worked 
up a business of, say, 300 subscribers in a town, a 
municipality entering the field would at once enjoy 
the advantage of having those 300 members, not indeed 
as subscribers, but as communicants. He thought that 
a most unfair condition, and he was not surprised that 
the Company would not agree to it." 2 

So far as Metropolitan London is concerned, the 
Telegraph Act, 1899, was abandoned just about two 
years after it had been enacted, and one year after Mr. 
R. W. Hanbury had been removed from his position 
of direct control over the Post Office by his promotion 
to the Presidency of the Board of Agriculture. In 
1898 and 1899, Mr. Hanbury had been in the habit 
of protesting that Parliament would enact no legislation 



1 Report from the Select Committee on Telephones, 1898^.7520, 
Mr. R. W. Hanbury, Chairman, examining Mr. W. E. L. Gaine, 
General Manager National Telephone Company. 

* Hansard's Parliamentary Debates; August 9, 1905. 



282 THE TELEPHONE IN GREAT BRITAIN 

that would give the National Telephone Company 
Mr. Hanbury's statutory way-leaves ; and that no Post- 
Somersault master General would dare to override 

the local authorities to the extent of laying under- 
ground wires for the National Telephone Company 
between that Company's exchanges and its subscribers' 
premises. In 1902, when he was President of the 
Board of Agriculture, and was face to face with the 
possibility of seeing his legislative measure end in a 
complete fiasco, he supported his colleague, the Post- 
master General, in the exercise of his power to over- 
ride the objections of every local authority in Metro- 
politan London, which had an area of 634 square miles. 
He said that "if the Post Office had gone in for a com- 
petition of cutting rates, they would have stood a 
very good chance of being beaten, or at any rate, of 
having to carry on the competition, at the cost, not of 
the people of London alone, but of the taxpayers 
throughout the country. ... A competition of cutting 
rates would have been carried on by the Post Office 
at a great disadvantage, because they had no subscrib- 
ers, and the National Telephone Company was in pos- 
session of the field." 1 

So far as Metropolitan London is concerned, the 
Telegraph Act, 1899, achieved nothing that benefited 
the public and was at the same time fair to the National 
Telephone Company, that could not have been attained 

1 Hansard's Parliamentary Debates; January 2j, 1902, p. 1093, 
Mr. Hanbury. 



METROPOLITAN LONDON AGREEMENT 283 

in 1899 by means of friendly negotiation with the 
National Telephone Company. If there was any re- 
duction in the tariff for unlimited service, it was very 
Much Ado small indeed. As for the establishment 

About Nothing f the measured service, the National 
Telephone Company in 1899 would have welcomed 
any action of the Government which would have en- 
abled the Company to establish that service concom- 
itantly with the abolition of the unlimited service. 
As for the Post Office establishing the unlimited service 
alongside of the limited service, that action was taken 
for reasons of political expediency, and against the 
business sense of the Post Office. It was not an action 
taken in the public interest in the proper sense of the 
word. 

Upon the question whether the Company would have 
accepted, in 1899, the measured rates established in 
1 90 1, this much is to be said: In March, 1906, the 
Post Office Exchanges had not yet proved that those 
rates were remunerative. In 1905-06, with 90 per cent, 
of its subscribers on the measured service, the Post 
Office Exchanges yielded a surplus of $50,000. This 
small surplus was shown by charging to depreciation 
a sum equal to three per cent, on the capital investment. 
That allowance was very small, unless the progress of 
invention in the telephone business shall prove to be 
very much slower in the future than it has been in the 
past. Again, the Post Office began operations in 1902, 
having at its command all the knowledge acquired at 



284 THE TELEPHONE IN GREAT BRITAIN 

great cost by private enterprise in the course of some 
twenty-two years. A private company which had sus- 
tained great losses through unavoidable mistakes and 
Industrial tne progress of invention, and had not 

Pioneers' Losses yet been able to recover fully from those 
losses, could not equitably be asked to adopt a scale of 
charges that would barely cover expenses when made 
by a concern starting with a clean sheet in 1902. The 
extent of the losses which have to be carried by pioneers 
in industry, is illustrated by the experience of the New 
York Telephone Company in the sixteen years ending 
with December 31, 1904. In that period the Com- 
pany's plant was practically rebuilt three times. At 
various times radical improvements were made in 
cables and in switch-board systems which involved 
the abandonment of plant by no means unserviceable 
because of its physical condition. Some of the central 
stations were rebuilt three times within a little over 
ten years. 1 

Upon this matter of the losses due to the progress 
of invention, Mr. John Gavey, Engineer-in-Chief to 
Post Office, since 1902, has testified as follows : "The 
ordinary life, putting aside the possibility of replace- 
ment by new invention, of telephone apparatus, might 
be taken roughly at twenty years; but I think in the 
past the actual life has been far nearer ten or fifteen 
years, because owing to the progress of invention, it 

1 Inquiry into Telephone Service and the Rates in New York 
City, by the Merchants' Association of New York, June, 1905* 



METROPOLITAN LONDON AGREEMENT 285 

has become obsolete before it has been worn out." 1 
Again, it must be remembered that the National 
Telephone Company has had to make good out of its 
current revenue not only the losses due to the progress 
of art and science, but also the losses due to the play of 
national and municipal politics. The twin-wire system 
was adopted in New York in 1887, or thereabout. 2 In 
1887, or 1888, the National Telephone Company would 
have introduced that system in Metropolitan London, 
had it been able to obtain statutory way-leaves. 3 Again, 
as soon as it became commercially practicable to lay 
telephone wires underground, the National Telephone 
Company became eager to put its wires underground. 
But down to November, 1901, the play of national and 
municipal politics compelled the Company to string 
from house-top to house-top the great bulk of its wires 
erected in Metropolitan London. The entire capital 
invested in house-top wires was practically thrown 
away, since, under the Agreement of 1901, the Post 
Office in 191 1 will be able to contend successfully that 
house-top wires are not suited to the purposes of the 
Postmaster General and need not be purchased by the 
Post Office. 

The means adopted by the Government to secure its 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 518. 

2 Glasgow Telephone Inquiry, 1897; q. 9451, Mr. H. L. Webb, 
Assistant General Manager New York Telephone Company. 

3 Report from the Select Committee on Telegraphs Bill, 1892; 
q. 369, Mr. J. S. Forbes, Chairman National Telephone Company. 



286 THE TELEPHONE IN GREAT BRITAIN 

unwarrantable demand for intercommunication between 
the subscribers to the National Telephone Company 
and the subscribers to the proposed Post Office Metro- 
politan London Telephone Exchanges, were charac- 
terized by the same disregard of the 
u m y public convenience that characterized 

the telephone policies of Glasgow, the City of London, 
the London County Council, and the Association of 
Municipal Corporations. They were characterized also 
by the same disregard of the niceties of the demands 
of rectitude that characterized the Select Committee of 
1898 when it recommended all-round competition with 
the National Telephone Company; and characterized 
the Government and Parliament, when they accepted 
the Report of the Select Committee. 



CHAPTER XVII 

THE AGREEMENT OF 1905 

The Telegraph Act, 1899, proves a complete failure also for 
that part of the United Kingdom known as the Provinces; and 
it is abandoned in February, 1905. The Post Office agrees to 
purchase, on December 31, 191 1, the National Telephone Com- 
pany's plant. That arrangement will get the Company out of 
the way, in 191 1, and will leave Parliament free to determine 
whether the local service — as distinguished from the long distance 
service — thenceforth shall be conducted by the Post Office or 
by the local authorities. The agreement is referred to a Select 
Committee of the House of Commons, which Committee makes 
two recommendations which the Government declines to ac- 
cept, on the ground that they would be respectively "an infringe- 
ment of a statutory right" and a "most unfair" action. A third 
recommendation made by the Committee, if it had been carried 
out, would have inflicted upon the holders of the securities of 
the National Telephone Company even more serious loss than 
had been inflicted by the Report of the Select Committee on Tele- 
phones, 1898, and the Telegraph Act, 1899. The agreement of 1905 
will leave the British public without an adequate telephone 
service until December 31, 191 1. 

Early in 1904, the Government approached the 
National Telephone Company on the question of the 
purchase of the Company's provincial plant; but the 
two parties found themselves so far apart that the stage 
of actual negotiation for purchase was not reached. 1 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 215, Mr. H. B. Smith, Permanent Secretary 
to Post Office. 

287 



288 THE TELEPHONE IN GREAT BRITAIN 

The year 1904 was allowed to pass without the Gov- 
ernment taking advantage of its last opportunity to 
compel the Company to sell at a price fixed by arbitra- 
tion on the basis of present earnings and future pros- 
pects. 

Early in 1905, the Government considered how it 
should meet the situation that would arise on Decem- 
ber 31, 191 1, with the expiry of the Company's license. 
So far as Metropolitan London was concerned, the 
problem had been settled by the Agreement of Novem- 
ber, 1 90 1. As for the rest of the United Kingdom, 
the so-called provinces, the situation was as follows. 
For six years some 1300 local authorities had been at 
liberty to engage in competition with the National 
Complete Failure Telephone Company on the basis of 
of Telegraph licenses running not to exceed twenty- 
Act, 1899 five years 1 sj x c j t j es had established 

municipal telephone exchanges; and of those, one had 
sold out to the National Telephone Company after two 
and one-half years of competition. Of the remaining 
five cities, Glasgow alone had succeeded in establishing 
an exchange of any proportions; and the indications 
were that even Glasgow had been "beaten to a stand- 
still. ,: ' 2 Seven other cities had taken out licenses in the 
period from September, 1900, to December, 1902 ; but 

1 Compare Hansard's Parliamentary Debates; June 29, 1903, Mr. 
Austen Chamberlain, Postmaster General. 

2 Telephones in use in Glasgow : 

1903 1904 1905 1906 

Municipal plant 9.123 12,032 12,362 12,821 

Company plant 16,471 22,227 29,908 



THE AGREEMENT OF 1905 289 

none had made any preparations whatever to supply 
service. In short, in 1905, the National Telephone 
Company held 90 per cent, of the business outside of 
Metropolitan London; 1 and there was no prospect of 
any material modification of that situation in the course 
of the next six years. 2 In other words, the Telegraph 
Act, 1899, had failed completely to achieve Mr. Han- 
bury's most cherished wish, to-wit, the establishment of 
a system of municipal telephone exchanges which, in 
the transitional period from 1905 to 191 1, should make 
the public as well as the Government entirely inde- 
pendent of the National Telephone Company. 

When the complete failure of the policy of munici- 
pal competition had been established beyond the possi- 
bility of controversy, the Government became alarmed 
lest it should find itself in 191 1 in the position of a 
"forced buyer" of the National Telephone Company's 
provincial plant ; 3 for it was obvious that the provincial 
telephone service could not be permitted to come to a 
stand-still on January 1, 19 12. Two courses, there- 
fore, presented themselves to the Government in 1905 : 
to make arrangements for the purchase of the Com- 
pany's provincial plant in 191 1, on terms similar to 

1 Telephones in use outside of Metropolitan London : 

Post Office 10,380 

Municipalities 19,000 

National Telephone Company.... 252,000 
3 Report from the Select Committee on Post Office {Telephone 
Agreement), 1905; q. 2100 and 2101, Mr. H. B. Smith, Permanent 
Secretary to Post Office. 

3 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 212, 281, 283, 2100 and 2101, Mr. H. B. Smith, 
Permanent Secretary to Post Office. 

19 



290 THE TELEPHONE IN GREAT BRITAIN 

those made in November, 1901, for the purchase of the 
Metropolitan London plant; or, to establish before 
19 12 a provincial Post Office telephone system capable 
of taking over, on January 1, 19 12, all of the National 
Telephone Company's subscribers. 

To the plan of duplicating the Company's provincial 
plant there were serious objections. The construction 
of a duplicate system would involve an enormous waste 
Duplication through the throwing aside of the 

Impracticable Company's plant ; moreover, it could be 
achieved before January 1, 19 12, only by working un- 
der "extreme pressure," and, therefore, at abnormal 
cost. Indeed, Mr. Gavey, Engineer-in-Chief to Post 
Office, was not perfectly sure that it could be achieved 
at all before January 1, 191 2. 1 Again, Sir Robert 
Hunter, Solicitor to Post Office since 1882, speaking 
from past experience, expressed grave doubt as to the 
Post Office being able to obtain the way-leaves requisite 
for the duplication of the Company's provincial plant. 
He said the local authorities were becoming more and 
more reluctant to give the Post Office way-leaves, for 
the National Telephone Company had established the 
practice of paying for way-leaves, which practice the 
Post Office had refused to follow. If the Post Office 
should enforce, through appeal to the courts, its statu- 
tory power to take way-leaves without paying the local 
authorities, and should tear up the streets for the pur- 



1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 387, 423 and 436. 



THE AGREEMENT OF 1905 291 

pose of laying pipes which were not to be used for 
some years to come, "Parliamentary pressure would be 
brought upon the Post Office not to proceed." 1 

Under the foregoing circumstances the Post Office 
made an agreement with the National Telephone Com- 
pany for the purchase of its provincial plant in 191 1, 
said agreement being essentially a duplicate of the 
London Agreement of November, 1901. But before 
taking up that agreement, it is necessary to speak of 

Inve t nt one ^ urtner ^ act tnat made it necessary 

under Expiring for the Government to make immedi- 
Franchises ate jy an arran g e ment of some kind 

with the National Telephone Company. That fact was 
the unwillingness, and, in part, the inability of the 
Company to make further investments on the strength 
of a license which would expire in 191 1, with no pro- 
vision as to what would become of the Company's 
provincial plant, and with provision of uncertain finan- 
cial outcome for the Company's Metropolitan London 
plant. The situation had been summed up by Sir 
Henry H. Fowler, Chairman National Telephone Com- 
pany, at the Company's annual meeting in February, 
1904. 2 Sir H. H. Fowler had said that the conditions 
under which the Company was doing its work, with 
each succeeding year made it increasingly difficult to 
raise further capital on remunerative terms. On the 
other hand, every additional subscriber meant a further 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 2040 and 2041, and Appendix, p. 256. 

2 The Economist ; March 26, 1904. 



292 THE TELEPHONE IN GREAT BRITAIN 

investment of capital. The alternative to further large 
capital expenditure was the deplorable policy of deny- 
ing service to would-be subscribers. He had added 
that at that moment there were waiting for service 
some 3,300 people in Metropolitan London, and some 
7,700 people in the provinces. 

When Sir H. H. Fowler made the foregoing state- 
ment, the capitalization of the Company was $45,872,- 
910. That capitalization represented an investment of 
$39,412,910 in plant and patent rights; the remaining 
$6,460,000 representing "water" injected in the course 
of the amalgamations brought to a close in 1890. But 
since 1890, the Company had invested in plant, undis- 
tributed earnings aggregating $8,092,050, and not 
represented by any outstanding securities. Further- 
more, it had charged to operating expenses the whole 
cost of replacing with twin wires, or the metallic cir- 
cuit, the single-wire plant erected previously to 1892. 1 
In other words, the "water" had been more than elim- 
inated; and the plant as a whole had been made to 
embody fairly well the best American telephone prac- 
tice, the General Manager and his leading officials hav- 
ing visited the United States three times in the last 
six years. And yet, in March, 1904, the market value 
of the securities of the National Telephone Company 
had been only $43,887,500, or 95.67 per cent, of the 



1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 536 to 553, 1655, 1759 and 1760, Mr. W. E. L. 
Oaine, General Manager National Telephone Company. 



THE AGREEMENT OF 1905 293 

face value. 1 So far as the public demand for telephone 
services was concerned, the opportunity for the profit- 
able investment of capital in telephone plant never had 
been so good as it was in 1904. But the peculiar con- 
ditions created by the play of national politics and 
municipal politics had so impaired the credit of the 
National Telephone Company, that the Company, early 
in 1904, had been obliged to issue four per cent, deben- 
ture stock at 95. 

Before the Select Committee of 1905, Mr. W. E. L. 
Gaine, General Manager National Telephone Company, 
testified that during the past few years he had con- 
stantly called the attention of the Postmaster General, 
through the Secretary to the Post Office, to the grow- 
ing difficulty of raising "upon fair, reasonable and com- 
mercial terms, the very large amount of capital con- 
stantly required to be poured into the business." He 
added that in the next few years upward of $50,000,000 
ought to be spent upon the telephone service. The 
witness added that in the past three years the Ameri- 
can Telephone and Telegraph Company, in the United 
States, had invested an average of $40,000,000 a year ; 

1 The Economist; March 26, 1904. 

Par value Market value 

$ $ 

First preference shares, 6 per cent. 750,000 1,012,500 

Second preference shares, 6 per cent. 750,000 1,050,000 

Third preference shares, 5 per cent. 6,250,000 6,250,000 

Preferred shares, 6 per cent. 9,916,665 10,015,000 

Deferred shares, 5 per cent. 9,833,335 5,860,000 

Debenture shares, 3^ per cent. 10,000,000 9,500,000 

Debenture shares, 4 per cent. 8,372,910 8,200,000 



Grand total 45,872,910 43,887,500 



294 THE TELEPHONE IN GREAT BRITAIN 

and that in the year 1905, it would invest upward of 
$50,ooo,ooo. 1 

At the same time, the Permanent Secretary to the 
Post Office, Mr. H. B. Smith, stated that it soon would 
become impossible for the Company to raise further 
capital for expenditure upon "plant which they would 
have no security for selling at the end of their term." 2 

Under the foregoing circumstances, the Postmaster 
General on February 2, 1905, entered into the follow- 
ing Agreement with the National Telephone Company 
for the purchase, in 191 1, of the plant 
gr emen ou ^ s i^ e f Metropolitan London. The 
Postmaster General agreed to purchase all plant, land 
and buildings of the Company brought into use with 
the sanction of the Postmaster General and in use by 
the Company on December 31, 191 1. The phrase: 
"brought into use with the sanction of the Postmaster 
General," means : in use at the date of the Agreement, 
or constructed after that date in accordance with the 
specifications and rules set forth in the Agreement. 
Provided, however, that the Postmaster General may 
object to take over any plant on the ground that it is 
not suited to his requirements, or may take it over at a 
price reduced so as to correspond to such unsuitability. 
In both cases the question of suitability is to be left to 
the Railway and Canal Commission as arbitrators. 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 552 and 553. 

2 Report from the Select Committee on Post Office {Telephone 
Agreement), 1905 ; q. 213. 



THE AGREEMENT OF 1905 295 

The foregoing proviso was inserted mainly for the 
purpose of enabling the Postmaster General to pick and 
choose between Company plant and municipal plant in 
those areas in which the municipalities had established 
telephone exchanges. 1 

The price is to be fixed by the Railway and Canal 
Commission as arbitrators, on the basis of cost of re- 
placement, with allowance for depreciation due to wear, 
imperfect state of repair, the introduction of new 
methods of working, or, to further inventions. No 
allowance shall be made for compulsory sale, or good- 
will, or any profits which the Company might have 
made by the continued use of such plant. 

In those cases in which the National Telephone Com- 
pany's license has been extended beyond 191 1, to-wit, 
Glasgow (1913), Swansea (1920), Brighton (1926) 
and Portsmouth (1926), the Postmaster General will 
buy, with allowance for good-will, the unexpired license 
of the Company. The value of the good-will is to be 
fixed by arbitration. 

The Postmaster General agreed also to buy the so- 
called private wire plant of the Company, which con- 
sists of wires connecting premises occupied or used by 
one person or firm. Such wires are not used by the 
general body of subscribers ; they are for private use as 
distinguished from public use ; and therefore the trans- 
mission of messages by means of them is no infringe- 

1 Report from the Select Committee on Post Office {Telephone 
Agreement), 1905; q. 2171, Mr. H. B. Smith, Permanent Secretary 
to Post Office. 



296 THE TELEPHONE IN GREAT BRITAIN 

ment of the Postmaster General's monopoly. For the 
private wire plant the Postmaster General agreed to 
pay structural value, plus an allowance for good-will 
equivalent to three times the average annual net profits 
obtained in the three years ending with December 31, 
1911. 

The Postmaster General agreed also to lay under- 
ground wires for the National Telephone Company in 
any local area in which the Company was operating, at 
an annual rental of $5 per mile of double wire. Pro- 
vided, however, that the Postmaster General should 
have the right to refuse to supply such works, if he 
thought they were unnecessary, or likely to be unsuited 
to his requirements after 191 1, or inconsistent with fair 
competition. Under the latter proviso against unfair 
competition, the Postmaster General has assured the 
municipalities that he will not, without the consent of 
the municipality concerned, lay underground wires for 
the National Telephone Company in areas in which 
municipalities have established exchanges. 1 

The National Telephone Company in turn relin- 
quished its power to show favor and grant preference, 
and accepted the maximum and minimum charges es- 
tablished by the Postmaster General and embodied in 
the Agreement; provided, that the Company might 
retain its then charges wherever they exceeded the 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 2138, Mr. H. B. Smith, Permanent Secretary 
to Post Office; q. 77 and 2013, Sir Robert Hunter, Solicitor to Post 
Office. 



THE AGREEMENT OF 1905 297 

maxima, or fell below the minima, fixed by the Post- 
master General. 

The Company also agreed to grant free intercom-, 
munication between its subscribers and the Postmaster 
General's subscribers, wherever the Postmaster General 
had established, or should establish, a telephone ex- 
change; as well as to adopt a scale of charges which 
should be binding also upon the competing Post Office 
exchange, and should be fixed either by agreement be- 
tween the Company and the Post Office, or, by the 
Treasury as arbitrator. 

If at any time representations are made to the Post- 
master General that the Company is giving an ineffi- 
cient service in any exchange area, and upon inquiry 
by a referee appointed by the Board of Trade it shall 
be ascertained by the award of such referee that the 
Company's service in such area is inefficient, and that 
such inefficiency is not caused by the unreasonable 
withholding of way-leaves by any local authority, it 
shall be lawful for the Postmaster General at his option 
either to require the Company to take such steps as he 
may deem necessary to render the service efficient, or 
to call upon the Company to sell to him the plant used 
by it in such exchange area. In the first case, if the 
Company make default in complying with the Post- 
master General's requirements, and in the second case 
forthwith, the Company shall sell to the Postmaster 
General all the plant in the area in question at struc- 
tural value, with no allowance for good-will, etc. The 



298 THE TELEPHONE IN GREAT BRITAIN 

foregoing provision against inefficient service on the 
part of the Company, the Postmaster General estab- 
lished because he had resolved to grant no further 
licenses to local authorities; as well as to try to per- 
suade the muntcipalities that had estsblished telephone 
exchanges to sell their plants either to himself or to 
the National Telephone Company. The Postmaster 
General's resolve was based upon the desire to avoid 
the waste of capital that would result from further 
duplication of plant in the competitive areas. 1 

The Agreement between the Postmaster General 
and the National Telephone Company was signed on 
February 2, 1905, subject to the proviso that it should 
The Select not ta ^e effect if either House of Par- 

Committee, 1905 Hament should pass a resolution against 
it before August 31, 1905. In the following May, the 
House of Commons appointed a Select Committee to 
report upon the Agreement. Before the Select Com- 
mittee, Sir Robert Hunter, Solicitor to Post Office; 
Mr. H. Babington Smith, Permanent Secretary to Post 
Office; and Sir George Murray, Permanent Secretary 
to Treasury, testified that the Agreement would get 
the National Telephone Company out of the way in 
191 1, and would leave Parliament free to decide 
whether the local telephone service, as distinguished 
from the trunk line service, should be retained by the 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 789 to 793, Mr. D. M. Stevenson, submitting 
a letter of the Postmaster General, Lord Stanley. 



THE AGREEMENT OF 1905 299 

Postmaster General, or should be sold to the several 

local authorities. 1 

Mr. W. E. L. Gaine, General Manager National 

Telephone Company, testified as follows : "In the view 

of the Board of the Company I feel bound to say that 

we think the Postmaster General has driven a very hard 

bargain, and I am justified, I think, in 
A Hard Bargain . ,. , .- , . 

going to this extent, that if each ;n- 

dividual member of the Board had been dealing with 
his own money [property] and not acting in a fiduciary 
capacity, he would have hesitated to accept the bar- 
gain .... In the view of the Board the bargain is a hard 
one because it gives no consideration in respect of the 
good-will of the great business, with its present gross 
income of over $10,000,000, and its net revenue of over 
$3,750,000 per annum, which the Company has built 
up. The Company has had to pay for all the experi- 
ments and mistakes which are inherent in the launch- 
ing and development of any new industry. It has paid 
the Post Office in royalties already $9,240,000^ and the 
Post Office under this Agreement is going to step into 
the business in 191 1 by merely paying for the plant 
employed in it." 3 

1 Report from the Select Committee on Post OMce (Telephone 
Agreement), 1905 ; q. 1996, 2099 and 1931. 

2 At the close of the year 1904, the Company had paid in divi- 
dends on its ordinary shares the sum of $13,460,000; and in divi- 
dends and interest upon its preference shares and debenture stocks 
the sum of $9,700,000. In addition it had accumulated a reserve 
fund of $8,090,000. Report from the Select Committee on Post 
OMce (Telephone Agreement), 1905 ; p. 248 to 250. 

8 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 554 to 560. 



300 THE TELEPHONE IN GREAT BRITAIN 

Sir Wollaston Knocker, Town Clerk of Dover, and 
representative of the Association of Municipal Corpor- 
ations, testified that the Association approved the pro- 
posal of the Government to purchase, "under the belief" 
that the State would reduce the local telephone charges. 1 
On the other hand, the representatives of the munici- 
palities that had established telephone exchanges, to- 
gether with the representatives of the City of London 

Demand of Tele- and the L ° nd o n County Council, pro- 
phone-owning tested against the proposed national- 
Municipalities {mt{on of the loca] telephone services. 

Their leading spokesman, Mr. D. M. Stevenson, 
Subconvener of the Glasgow Telephone Committee, 
argued that the rates charged by the City of Glasgow 
proved that the tariffs of the National Telephone Com- 
pany as well as of the Post Office Telephone Exchanges 
were much too high. He asked that the State acquire 
the property of the National Telephone Company on 
"replacement" terms, and then delegate to the local 
authorities the conduct of the local telephone services. 
Should the State retain the conduct of the local serv- 
ices, the excessive profits hitherto made by the Com- 
pany, would be retained by the State. 2 Mr. A. C. 
Morton, Chairman of the Streets Committee of the 
City of London, said: "We have always come to the 
conclusion, after considering the best advice we could 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 1386, 1387 and 1407. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 785 to 788, 889 and 897, Mr. D. M. Stevenson. 



THE AGREEMENT OF 1905 301 

take, that for an unlimited service in [Metropolitan] 
London, the charge should not be more than $50 a 
year; and we consider that if the Corporation of Glas- 
gow can give an unlimited service for their area for 
$26.25, ^ ought to be done for $50 in London." 1 Mr. 
H. E. Haward, Comptroller London County Council, 
stated that the County Council had been particularly 
London County disturbed by the statement made by 
Council is . Mr. W. E. L. Gaine, General Manager 
"Disturbed" National Telephone Company, that he 

hoped that the holders of the Company's ordinary 
shares would obtain the par value of their shares in 
191 1. He stated that the debenture stock and the 
preference shares must be redeemed in 191 1 at pre- 
miums ranging from three per cent, to five per cent., 
and aggregating $1,218,225. In order that the hold- 
ers of the ordinary shares might receive par value in 
191 1, the State would have to pay the Company 
$1,218,225 in excess of the total of outstanding securi- 
ties ; and such payment would diminish the probability 
of the Post Office being able substantially to reduce the 
telephone charges. 2 

When Mr. Haward made the following argument, 
the National Telephone Company had spent $56,617,- 
765 upon plant, patent rights and the purchase of 
various subsidiary and competing companies. The 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 1578 to 1590, Mr. A. C. Morton. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 1437 to 1461, Mr. Haward. 



302 THE TELEPHONE IN GREAT BRITAIN 

patent rights had cost $1,500,000; the purchase of 
subsidiary and competing companies effected previous 
to and in 1890, had resulted in the injection of $6,460,- 
000 of "water" ; and the shares of the New Telephone 
Company, purchased in 1892, had cost $2,199,480. 
Assuming, with the critics of the National Telephone 
Company, that the sum paid for the patent rights must 
be classed as "water/' since those rights have expired ; 
and assuming, furthermore, that the purchase of the 
New Telephone Company shares brought the National 
Telephone Company no tangible property whatever, 
one gets an aggregate of $10,159,480 of "water." On 
the foregoing assumptions, the National Telephone 
Company, in March, 1905, had spent $46,458,285 upon 
plant in the strictest sense of that word. Against that 
investment in plant there were outstanding, securities 
aggregating $45,992,965. 1 At the time when Mr. 
Haward made his argument, there was, therefore, a net 
balance of $465,300 to meet the sum of $1,218,225 
which would have to be paid as premiums in 191 1, 
before the ordinary shares could be cancelled. That 
balance, however, was increasing at the rate of $900,- 
000 a year, through the Company's practice of invest- 
ing each year in plant a certain amount of undivided 
earnings, such investment not being accompanied by 
the issue of securities. In fact, by July, 1906, the 
balance available for meeting Mr. Haward's $1,218,225 
already had become $2,561,000, through the increase 

Garcke : Manual of Electrical Undertakings, 1906. 



THE AGREEMENT OF 1905 303 

of the Company's reserve fund from $8,233,660 in 
June, 1905, to $10,329,715 in July, 1906. 1 Mr. Ha- 
ward's protest against the Company receiving in 191 1 
a sum sufficient to enable it to pay the holders of its 
preferred shares, premiums aggregating $1,218,225, 
therefore, in fact, was a protest against the Company 
being paid even a sum which would be materially less 
than the actual money cost of the plant which the Post 
Office would receive on January 1, 19 12. The modern 
character of that plant was indicated in Mr. Gaine's 
statements that in November, 1904, the average age of 
the entire plant had been only four years; and that he 
hoped that the replacement of worn out and antiquated 
plant would go on at such a rate that at the end of 191 1 
the average age of the entire plant would be somewhat 
less than four years. 2 

Mr. Thomas Munro, Clerk to the County Council of 
Lanark, appeared before the Select Committee of 1905 
in order to protest against the announcement made by 
the Postmaster General, that if the Post Office should 
assume the local telephone business in 191 1, it would 
discontinue any payments, either in money or by way 
of cheap service, hitherto made by the National Com- 
pany to the local authorities in consideration of way- 
leaves on public roads and streets. Mr. Munro stated 
that for the privilege of erecting poles in the roads of 

1 The Electrical Review; July 27, 1906. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 544 to 547, 582 to 589, and 601, Mr. W. E. 
L. Gaine, General Manager National Telephone Company, 



304 THE TELEPHONE IN GREAT BRITAIN 

Lanark County, the Company was paying $750 a year 
in cash, and $450 to $500 in the form of reduced rates 
to the police and other local government departments. 
Mr. Munro added : "Our agreement is that at any time 
we can call on the National Telephone Company to re- 
move their poles, and I do not know whether the Post 
Office have considered the very serious power that has 
thereby been conferrd upon the local authorities; be- 
cause, assuming any local authority choose to take up 
that attitude [toward the Post Office] in 19 10, they 
might call on the National Telephone Company to re- 
move all their poles, which is a very serious matter. 
I do not suggest that as a possible contingency, but I 
do mention it as showing the power of the local au- 
thorities in this matter "* 

Finally, Mr. D. M. Stevenson, Subconvener of the 
Glasgow Telephone Committee, appeared before the 
Select Committee in order to request the Government to 
adopt a policy which Sir Robert Hunter, Solicitor to 

Glasgow demands the Post 0mce > denominated a breach 
Breach of Parlia- of the "Parliamentary contract" made 
mentary Contract between the Government and the Na- 
tional Telephone Company while the Bill of 1899 was 
before Parliament. Upon that occasion the Company 
had agreed to establish intercommunication on certain 
terms ; to give up the right to exercise favor or prefer- 
ence; and to keep its charges within the maxima and 



1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 1529 to 1539, and p. 256. 



THE AGREEMENT OF 1905 305 

minima to be prescribed by the Postmaster General. 
In return, the Government had inserted in the Bill, and 
Parliament had accepted, a clause giving the Company 
the right to demand that its license be made concurrent 
with that of the municipality, in any case in which a 
municipality should take a license running beyond 191 1. 
Mr. Stevenson now demanded that the Government 
should insert in the Agreement a provision to the effect 
that notwithstanding anything contained in the Tele- 
graph Act, 1899, "the Postmaster General should be at 
liberty to extend the present licenses to municipalities 
and to grant new licenses to municipalities [for long 
periods] without being under obligation to extend the 
existing licenses of the Company." 1 

The Select Committee endorsed this request made by 
Mr. Stevenson on behalf of the muncipalities which 

owned telephone exchanges, as well as 
Select Committee , . .- r ,* ^., rT « * 

recommends In- on behalf of the Clt y of London and 
fringement of a the London County Council. But the 
Statutory Right Government re j ec ted that part of the 

Select Committee's Report, Lord Stanley, Postmaster 
General, saying that "the proposal of the Committee 
was a practical infringement of a statutory right." 2 



1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 741 to 745, and 2806 to 2826, Mr. D. M. 
Stevenson; q. 1990, Sir Robert Hunter, Solicitor to Post Office; 
q. 1626 to 1636, Mr. W. E. L. Gaine, General Manager National 
Telephone Company; q. 261* and 2126, Mr. H. B. Smith, Permanent 
Secretary to Post Office; and q. 1894 to 1903, 1908, 1947. H43> 1 156, 
1 1 64 and 1 1 09, Sir George Murray, Permanent Secretary to 
Treasury. 

2 Hansard's Parliamentary Debates; August 9, 1905; p. 83^ 

20 



306 THE TELEPHONE IN GREAT BRITAIN 

The Select Committee recommended also that the 
National Telephone Company be put under obligation 
to grant intercommunication free of charge between its 
Select Committee subscribers and those of any municipal 
recommends Un- telephone system that should be es- 
fair Competition tablished between September i, 1905, 
and December 31, 191 1. That recommendation also, 
the Government rejected. Lord Stanley, Postmaster 
General, said: "That meant that if the Company had 
worked up a business of, say, 300 subscribers in a town, 
a municipality entering the field would at once enjoy 
the advantage of having those 300 members, not in- 
deed as subscribers, but as communicants. He thought 
that a most unfair condition, and he was not surprised 
that the Company would not agree to it." ... . 

Had the Government compelled the National Tele- 
phone Company to accept the two policies advocated 
by Glasgow, Hull, the City of London and the County 
of London, and endorsed by the Select Committee of 
1905, it would have exposed the holders of the securi- 
ties of the National Telephone Company to the possi- 
bility of a loss even more serious than the loss inflicted 
upon those holders by the Report of the Select Com- 
mittee of 1898 and the Telegraph Act, 1899. With 
practically no risk to themselves, the municipalities 
could have established in the years 1905 to 191 1 a 
series of municipal telephone exchanges; and in 191 1, 
the Postmaster General would have been at liberty to 
purchase only such parts of the National Telephone 



THE AGREEMENT OF 1905 307 

Company's provincial plants as he would require in 
order to build up the several municipal plants into 
complete local plants. Indeed, the Municipal Jour- 
nal 1 advocated that policy, saying that it was the only 
means of protecting the public against the Post Office 
paying the National Telephone Company a price for 
its plant "that will make cheap telephones impossible 
for the next half century." The Municipal Journal 
added that the proposal in question would not be unfair 
to the Company, "which has all along conducted its 
operations in the light of the knowledge that its license 
expires in 191 1." 

In the House of Commons, on August 9, 1905, Mr. 
Lough moved, on behalf of the municipalities: "That 
the sanction of the House shall not be given to the pro- 
posed purchase agreement between the Postmaster Gen- 
eral and the National Telephone Company, unless the 
various recommendations of the Select Committee are 
embodied therein". . . .The Motion was rejected by a 
vote of 187 to no. In the course of the debate, Lord 
Stanley, Postmaster General, said : "After the Act of 
1899 was passed, it was open to any municipality or 
urban district council to apply for a license. There 

Lord Stamey were n0 lesS than *'334 bodies who 
on Telegraph could have taken out such a license. 
Act, 1899 Out of these, fifty-nine wrote to the Post 

Office, thirteen took, out a license, only six out of the 
thirteen set up a telephone service, and one of those 

1 Issue of January 13, 1905. 



308 THE TELEPHONE IN GREAT BRITAIN 

promptly sold it to the National Telephone Company. . 
. . No Postmaster General in his senses on either side 
of the House would give a single license to a munici- 
pality between now and 191 1. It had been quoted 
against him that in 1904 1 he said he was in favor of 
municipal telephones. Among his many stupid re- 
marks, he had never made one half so stupid as that. 
He had since then gone most carefully into the matter. 
He was absolutely convinced that he was entirely 
wrong, and that in the future the telephone service 
must be as completely in the hands of the State, if it 
was to be "thoroughly efficient, as was the telegraph 
or the postal service.". . . . 

In the course of the debate of August 9, 1905, Lord 
Stanley, Postmaster General, said that the demand for 
increased telephone facilities would call for the expen- 
diture of $66,250,000 in the years 1905 to 191 1. The 
Postmaster General was restating the statement made 
The Capital repeatedly by Mr. W. E. L. Gaine, 2 

Investment General Manager National Telephone 

Required Company, that if the Company were 

put in the position in which it could do justice to the 

1 Compare Hansard's Parliamentary Debates; March 23, 1904, 
Lord Stanley, Postmaster General : "He would be only too ready 
to help in every way any municipality that wished to start its own 
telephones, and he hoped the present difficulty, that a municipality 
could not get an extension beyond 191 1 without the company receiv- 
ing the same extension, might be overcome when they came to a 
general agreement." 

2 The Electrician; May 16, 1902, and July 14, 1905; and Report 
from the Select Committee on Post Office (Telephone Agreement), 

1905 ; q- 553. 



THE AGREEMENT OF 1905 309 

opportunities for developing the telephone service, it 
could find employment for $10,000,000 a year. Those 
estimates of what could be done, are in strong con- 
trast to what actually had been done. The largest 
investment of capital made by the National Telephone 
Company in any one year had been that of 1904, namely 
$4,253,000. In the four years ending with 1904, the 
average annual investment had been only $3,430,000. 
And in the seventeen months ending with May, 1906, 
the investment of capital was only $5,275,000. 

At the annual meeting of the National Telephone 
Company held in July, 1906, the Chairman of the 
Company stated that during the next five and one-half 
years the Company would not attempt to build up busi- 
ness that would require nursing, as well as time to 
develop. It would confine itself to operations that 
from the start would pay interest and all other proper 
charges. 1 That policy, of course, was forced upon 
the Company by the fact that in 191 1 it would be 
obliged to sell, at the mere cost of replacement, such 
part of its plant as would be suitable to the purposes 
of the Postmaster General, and would receive nothing 
whatever for the remainder of its plant. 

Before the Select Committee of 1905, Mr. W. E. L. 
Gaine, General Manager National Telephone Com- 
pany, stated that in view of the Company the Govern- 
ment's charge of $5 a year per mile of double wire 2 

1 The Electrician; July 27, 1906. 

2 In July, 1905, the average cost of laying underground in Metro- 
politan London some 163,000 miles of wire had been $84.50 per mile 
of double wire. Report of the Postmaster General, 1905. 



310 THE TELEPHONE IN GREAT BRITAIN 

laid underground for the Company was too high. He 
expressed the fear that the charge in question would 
lead the Company to restrict the use which it would 
make of the Post Office's offer to lay underground 
wires for the Company in any telephone area in 
which there was no municipal telephone plant. 1 

The Agreement of 1905, therefore, has warded off 
the danger which had threatened the public, namely 
the practical arrest of the further investment of capital 
by the National Telephone Company; but it does not 
Poor Prospect of promise to give the public the benefit 
Adequate Service f that liberal investment of capital 
which the National Telephone Company would be glad 
to make. Until the close of the year 191 1, the British 
public will have to content itself — as, indeed, it has been 
obliged to do since the year 1880 — with telephonic fa- 
cilities which in point of extent lag far behind the 
facilities that British captains of industry and capital- 
ists gladly would give the public, could those men ob- 
tain terms which would tempt them. 

The extent to which the telephone service at the dis- 
posal of the people of Great Britain might be increased, 

British and 1S mdicated in the following figures. 

American In the year 1906, one person in each 

Statistics IQ5 persons j n the United Kingdom 

was a subscriber to the telephone. On January 1, 1907, 
one person in each 20 persons in the United States was 
a subscriber to the telephone. 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 561. 



THE AGREEMENT OF 1905 311 

In 1905, the Government achieved that at which it 
had aimed since 1880: the right to buy at reconstruc- 
tion value — that is, with no allowance for earning 
power — the telephone industry "ready 

nmary made." Whether the Government will 

be able to retain the property which it will buy for little 
more than a song, or will be obliged to transfer its bar- 
gain to the municipalities, remains to be seen. 

The Association of Municipal Corporations approved 
the bargain "under the belief" that the State would 
reduce the tariffs immediately upon taking possession 
of the telephones. Glasgow and the remaining muni- 
cipalities that owned telephone plants asked the Gov- 
ernment to break the "Parliamentary contract" made 
with the National Telephone Company in 1899; and 
the Select Committee of 1905 endorsed that request. 
The Government, however, rejected it. 

The National Telephone Company has announced 
that during the remainder of its life it will confine the 
further investment of capital to expenditure upon busi- 
ness that will pay from the start; that it cannot afford 
to undertake to develop business that will require time 
and nursing. The prospects are, therefore, that until 
the year 19 12, the British public will have to put up 
with the relatively inadequate telephone facilities with 
which it has been obliged to content itself in the past. 



CHAPTER XVIII 

MUNICIPAL TELEPHONE EXCHANGES OF GLASGOW, 
BRIGHTON, HULL, SWANSEA, PORTSMOUTH AND 
TUNBRIDGE WELLS 

The Corporation of Glasgow embarks in the telephone business, 
expecting to install a plant for about $95 per subscriber's line. 
In May, 1906, its expenditure had been $183 per subscriber's 
line. The Corporation lays its wires under the streets; at the 
same time denying the National Telephone Company all public 
way-leaves. It expects to destroy the Company's business in 
Glasgow; but it is beaten "to a stand-still." In September, 1906, 
the Corporation sold its plant to the Post Office for $1,525,000, 
that is, at a net loss of $58,980. Shortly afterward the Postmaster 
General announced that he would have to reconstruct the main 
exchange, as well as replace every one of the 12,800 subscribers' 
telephones in use. Those operations probably will cost from 
$500,000 to $750,000. The Postmaster General also announced 
that he would have to revise, that is, raise, the tariffs enforced by 
the Corporation. 

In October, 1906, the Postmaster General paid the Corporation 
of Brighton $245,000 for its telephone plant, enabling the Cor- 
poration to withdraw with a loss of $12,250. To the Corporations 
of Hull, Swansea and Portsmouth, the Postmaster General 
offered considerably less than those Corporations had expended 
upon plant. Swansea subsequently sold its plant to the National 
Telephone Company. Tunbridge Wells, the only other munici- 
pality that had gone into the telephone business, had sold out to 
the National Telephone Company in November, 1903, after two 
and one-half years of operation. 

At the Glasgow Telephone Inquiry, 1897, and before 

the Select Committee on Telephones, 1898, Mr. A. R. 

312 



MUNICIPAL TELEPHONE EXCHANGES 313 

Bennett, Telephone Engineer to the Corporation of 
Glasgow, submitted "a statement of the ascertained 
cost" of installing in Glasgow a telephone system fully 
equipped for 5,200 subscribers, and with 1,210 spare 
metallic circuits for the use of future subscribers. Mr. 
Bennett termed his document "a statement of ascer- 
tained cost," rather than an estimate, "because every 
item in it was covered by a tender from a competent 
well-known electrical firm," made in response to invi- 
tations from the Town Clerk of Glasgow. Mr. Bennett 
stated that the exchange could be built for $94 per 
subscriber ; and that it could be operated under a tariff 
of $26.25 a year for unlimited service. He added that 
he should advise the Corporation to install a plant that 
would accommodate at least 20,000 to 25,000 sub- 
scribers ; and that the cost per subscriber of the larger 
Glasgow Corpor- exchange would not be materially in 
ation Engineer's excess of $94. He stated that his faith 
Estimate in his estimate was in no way shaken 

by the testimony of Mr. W. H. Preece, Engineer-in 
Chief to Post Office, that outside of Metropolitan Lon- 
don an underground metallic circuit telephone system 
for 5,000 subscribers would cost $225 per subscriber. 1 
Before the Select Committee of 1898, Mr. D. Sin- 
clair, Engineer-in-Chief to National Telephone Com- 
pany, stated that the cost of installing in Glasgow 
a metallic circuit underground system which should 

1 Glasgow Telephone Inquiry, 1897; q. 5557, 5579, 535^, 5359. 
536o, 5362 to 5368, and p. 297 ; and Report from the Select Com- 
mittee on Telephones, 1898; q. 1681 and following. 



314 THE TELEPHONE IN GREAT BRITAIN 

remain stationary at 5,000 subscribers would be some- 
thing under $200 per subscriber. He added that an 
estimate of that kind was of no value because a grow- 
ing telephone system never could fully utilize its plant. 

._ . , _ ■ Experience in Great Britain and the 

National Tele- 
phone Company United States had shown that when the 

Engineer's spare wires had fallen to 25 per cent. 

Esttfit & t& 

of the total, it was necessary to reopen 

the streets and put down new pipes and cables. The 

cost of an exchange, per subscriber, at any particular 

moment was very largely a question of the amount of 

spare plant. When the proportion of spare plant was 

very large, the cost per subscriber was very high ; when 

it was at its minimum — about 25 per cent. — the cost 

per subscriber was at its minimum. 1 

In July, 1900, the Corporation of Glasgow began the 

construction of a telephone plant which was to serve 

an area of 143 square miles with a population of about 

1,000,000. The system was opened for business in 

^, A , „ March, 1901 ; and in May, 1006, it had 
The Actual Cost . ' , , 

in use 12,820 telephones, or about 

10,000 subscribers' lines. At the last mentioned date 

there was utilized about 80 per cent, of the switch room 

plant and about 55 per cent, of the telephone wires. 

The capital invested in plant was $183 per subscriber's 

line in use, or $143 per telephone in use. 2 

1 Report from the Select Committee on Telephones, 1898 ;q. 8281, 
8285, 8336 and 8337. 

2 The Electrician; September 15, 1905; Garcke: Manual of 
Electrical Undertakings, 1907, P- 1023 ; and Report from the Select 
Committee on Post Office (Telephone Agreement), 1905 ; q. 761, 
762, 765 and 774, Mr. D. M. Stevenson, Subconvener Glasgow Tele- 
phone Committee. 



MUNICIPAL TELEPHONE EXCHANGES 315 

The Corporation of Glasgow laid its wires entirely 
underground in the center of the city and in one of the 
suburbs; further afield it usually ran its wires over- 
head, although it always laid the main routes under- 
ground. 1 At the same time it refused the National 
Unfair Telephone Company permission to lay 

Competition its wires underground. 2 In 1897, be- 

fore the Commissioner appointed to inquire into the 
Telephone Exchange Service in Glasgow, Mr. Edward 
T. Salvesen, of counsel to the Corporation of Glasgow, 
had argued that one reason why the Corporation should 
not give the National Telephone Company under- 
ground way-leaves was that without such way-leaves 
the Company's system was "valueless .... because the 
competition that the Glasgow Corporation can bring 
to bear will effectively annihilate this Company in Glas- 
gow, and will redound to the permanent advantage of 
Glasgow." 3 

The National Telephone Company could not afford 
to let the Corporation of Glasgow drive it from the 
field ; for such success on the part of the Corporation 
might have given a great impetus to municipal competi- 
tion throughout England and Scotland. Then again, 
as Mr. Salvesen, of counsel to the Corporation, himself 



1 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 760, Mr. D. M. Stevenson, Subconvener Glas- 
gow Telephone Committee. 

2 Report of the Select Committee on Post Office (Telephone 
Agreement), 1905; q. 874, Mr. D. M. Stevenson; and q. 108, Sir 
Robert Hunter, Solicitor to Post Office. 

• Glasgow Telephone Inquiry, 1897; p. 22J. 



316 THE TELEPHONE IN GREAT BRITAIN 

pointed out, the installation of electric tramways by the 
Corporation would have impaired seriously the effi- 
ciency of the Company's telephone system, by produc- 
ing induction currents in the subscribers' wires. For 
those two reasons the Company went to the heavy ex- 
pense of converting its overhead single wire system into 
an overhead metallic circuit system, with the knowledge 
that ultimately practically the whole cost of that con- 
version would have to be written off as "wastage." 
The Corporation of Glasgow was of opinion that 
the cost of the conversion would exceed the cost of 
constructing de novo an underground metallic circuit 
system. Mr. W. E. L. Gaine, General Manager Na- 
tional Telephone Company, agreed with the Corpora- 
tion on that point. 1 He added, that after the Company 
should have gone to such great expense, its system 
would not be as efficient as if it were underground. 
The reason why no overhead system could be efficient 
was stated by Mr. D. Sinclair, . Engineer-in-Chief to 
National Telephone Company. That officer stated that 
Inefficiency of tne l 9A 2 4 mechanical faults that had 
Overhead Plant been found in the Company's Glasgow 
plant in the three preceding years had been due to the 
following causes : Building operations had caused 
9,074 interruptions of service; withdrawals of way- 
leaves over house-tops had caused 4,977 interruptions 
of service; improvements on roofs and the erection 

1 Glasgow Telephone Inquiry, 1897; q. 7770 to 7780, Mr. Salve- 
sen, cross-examining Mr. Gaine ; q. 7589, Mr. Gaine ; and q. 979Sf 
Mr. Forbes, Chairman National Telephone Company. 



MUNICIPAL TELEPHONE EXCHANGES 317 

of larger standards had caused 3,954 interruptions; 
fires had caused 262 interruptions of service; storms 
had caused 700 interruptions; and 457 interruptions 
had been due to sundry causes. 1 Mr. Gaine had added 
that the necessity of keeping within the limits of the 
strain that the roofs could withstand, would compel the 
Company to use india-rubber cables, which, in turn, 
would impede long distance conversation over the Post 
Office trunk lines. 2 Finally, Mr. Commissioner Jame- 
son had urged — and Mr. Salvesen had agreed with 
him — that, in the interests of the owners of the houses 
as well as of the general public, "it would be very 
desirable not to double that system, with its increased 
weight and increased bulk. Is it in the interests of the 
public, and having regard to amenity, to have these 
hideous cables over the streets?" 3 

The Corporation established the following tariffs: 

Unlimited service, one-party line, 

The Tariffs & ^ , , ,. <* 

$26.25 a year; two-party line, $21 a 

year; four-party line, $15.75 a Y ear - Measured serv- 
ice: one-party line, an installation charge of $17.50 a 
year, and 2 cents for each call originated by the sub- 
scriber. 

The National Telephone Company retained un- 
changed its tariff for the one-party line unlimited serv- 
ice, to wit, $50 a year for the first connection; and 

1 Glasgow Telephone Inquiry, 1897; q. 8080. 

2 Glasgow Telephone Inquiry, 1897; q. 7594. 

3 Glasgow Telephone Inquiry, 1897; p. 228. 



318 THE TELEPHONE IN GREAT BRITAIN 

$42.50 for each additional connection. But it intro- 
duced a number of "competitive" tariffs. They are: 
unlimited service, two-party line, $30 a year, and 
four-party line, $20 a year. The competitive measured 
service tariffs are: one-party line, an annual installa- 
tion charge of $25 a year, 600 calls free, and additional 
calls 2 cents each, or 300 calls for $5 ; one-party line 
for private houses, $25 a year, 1,500 calls free, excess 
calls 2 cents each ; ten-party line, no installation charge, 
subscriber guaranteeing two calls a day at 2 cents each ; 
and finally, "omnibus," or twenty-party line, an annual 
installation charge of $6.25 a year, 600 calls free, and 
excess calls 1 cent each. The Company's officers have 
instructions not to open an omnibus line with less than 
12 subscribers; and in July, 1905, the average number 
of subscribers per omnibus line was 12. i. 1 

The Municipal Telephone Exchange gained sub- 
scribers very rapidly until May, 1903, when it had 
9,123 instruments in use. 2 After that date the rate 
of increase slackened; and since May, 1905, the num- 
ber of municipal telephones in use has been practically 
Beaten to a stationary at about 12,800. In June, 

"Stand-still" I9 o5, Mr. D. M. Stevenson, Subcon- 

vener Glasgow Telephone Committee, stated that some 
people had given up their unlimited service subscription 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 627 and 1643, Mr. W. E. L. Gaine, General 
Manager National Telephone Company. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 765, Mr. D. M. Stevenson, Subconvener Glas- 
gow Telephone Committee. 



MUNICIPAL TELEPHONE EXCHANGES 319 

to the Corporation Exchange in order to subscribe to 
the Company's "omnibus" line service. 1 

While the number of municipal telephones in use 
increased only from 11,300 in May, 1904, to 12,360 
in May, 1905; and in May, 1906, was only 12,800; 
the number of Company telephones in use jumped from 
16,471 in June, 1904, to 22,227 m J une > I 9°5? 2 an d to 
29,900 on December 31, 1906. In other words, the 
city was "beaten to a stand-still" in the contest which it 
had invited in the expectation of ruining the National 
Telephone Company's business and property in the 
Glasgow telephone area. 3 In that contest Glasgow had 
had several great advantages. In the first place, under- 
ground way-leaves; in the second place, a charter run- 
ning until December 31, 1913; in the third place, the 
agreement of the Post Office to purchase on December 
31, 19 1 3, at reconstruction value, such part of the city's 
plant as should be suitable to the purposes of the Post- 
master General; and last, but not least, the great ad- 



1 Report from the Select Committee on Post Office (Telephone 
Agreement) , 1905 ; q. 779. 

2 The "Electrician; September 15, 1905; and The Electrical Re- 
view, July 27, 1906. 

3 Report addressed to the Lords Commissioners of Her Majesty's 
Treasury by Andrew Jameson, Q. C, etc.; p. 16. "But it is evident 
that what the Corporation wish and expect to do is to extinguish 
the National Telephone Company altogether as far as the Glasgow 
district is concerned. It is idle to speak of competition when they 
propose to supply a metallic circuit underground system, and at the 
same time to prevent the National Telephone Company (who wish 
to do so) from supplying the same. It appears to me that this can 

have only one result The result of such a competition 

would ultimately be not to keep up two competing services, but to 
substitute one monopoly for another." 



320 THE TELEPHONE IN GREAT BRITAIN 

vantage of being able to start with all the knowledge 
of, and improvement in, the art of telephony which 
some twenty years of experience of private companies 
in Great Britain and the United States had supplied 
and effected at great cost to those companies. 

The National Telephone Company entered the con- 
test under a twofold handicap. In the first place, it had 
no underground way-leaves, except between its ex- 
changes, where the Postmaster General rented the Com- 
pany underground wires. In the second place, every 
dollar which the Company invested in overhead metallic 
circuit wires, it invested with the knowledge that 
sooner or later the investment would have to be written 
off as wastage. It has often been said that the Company 
had a great advantage in the fact that it could, and 
did, run at a loss its Glasgow branch, making good 
that loss out of the profits earned in cities where there 
was no municipal competition. Before the Select Com- 
mittee of 1905, Mr. W. E. L. Gaine, General Manager, 
"emphatically" denied that the Company was pursuing 
the policy in question ; he added that the Company was 
so well satisfied that the "omnibus" service was profit- 
able, that it had introduced that service in a number of 
places where there was no competition. 1 Mr. Gaine 
also drew attention to the fact that Mr. Hanbury's 
Select Committee of 1898 had asked for "real and 
effective competition;" that one could not engage in a 



1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905; p. 262: Analysis of the various classes of tele- 



MUNICIPAL TELEPHONE EXCHANGES 321 

fight with his gloves on, and that the Company had 
taken off its gloves. 1 

Before the same Committee, Mr. H. Babington 
Smith, Permanent Secretary to Post Office, expressed 
the opinion that in the cities in which municipal plants 
were competing with the Company, the Company's 
profits were small, adding that he would not be sur- 
prised to hear "that in some cases they were non- 
existent. " 2 - 

On March 20, 1905, the Postmaster General, Lord 

Stanley, wrote the Corporation of Glasgow that in his 

opinion "it would be to the interest 
Postmaster ■■,.-,« 
General pur- Dotn * tne Corporation and the Na- 

chases Glasgow tional Telephone Company as well as, 

eventually, of the public service, if an 

arrangement could now be devised to unify in the near 

future the competitive telephone systems in the Glas- 

phone services provided by the National Telephone Company, in 
March, 1905. 

London Provinces 

Class Number of Annual Number of Annual 

of Service Telephones Revenue Telephones Revenue 

Exclusive Exchange 

and Private Lines, $ $ 
Unlimited Service 53,030 2,147,990 175,788 5,901,460 
Exclusive Line, Mes- 
sage Rate 20,741 764,695 35,722 987,665 

Party Lines, all 
classes except Om- 
nibus 12 490 35,260 816,770 

Omnibus Lines o o 5,464 35,oo5 

73,783 2,913,175 252,234 7,740,900 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 1667, 1668, 1643, 627 and 637. 

2 Report from the Select Committer on Post Office (Telephone 
Agreement), 1905 ; q. 222 and 223. 

21 



322 THE TELEPHONE IN GREAT BRITAIN 

gow area, and to continue their development so as to 
avoid waste arising from duplication of plant". . .He 
added that there already had been a considerable dupli- 
cation of plant ; and if competition should continue until 
December 31, 191 1, there would be in existence at that 
date a considerable amount of plant which the Post- 
master General would not purchase. 1 The result of the 
negotiations thus inaugurated was that in September, 
1906, the Corporation sold its telephone plant to the 
Postmaster General. The price was $1,525,000. On 
May 31, 1906, the Corporation's capital expenditure 
had been $1,805,380; in addition, the Corporation had 
had on hand $83,830 of stores, tools, etc., which were 
sold to the Post Office under a separate agreement. 
On the other hand, the Corporation had accumulated a 
sinking fund of $185,665, and a depreciation fund of 
$3 5, 73 5. 2 The Corporation's net loss on its telephone 
experiment therefore was $58,980. 

The Electrical Review, 3 in the course of its comments 
upon the sale, said : "No secret is made of the fact that 
the figure [$1,525,000] has been arrived at by dint 
of political pressure on the Government Departments 
concerned, and that it is considerably in excess of the 
Postmaster General's original offer." The writer has 
been told by a well-informed person that it was a 
matter of rather widespread knowledge in the circles 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 793. 

3 The Municipal Year-Book, 1907; p. 542. 
3 July 13, 1906. 



MUNICIPAL TELEPHONE EXCHANGES 323 

interested that the Postmaster General's first offer was 
$1,350,000. 

Mr. James Alexander, Chairman Glasgow Telephone 
Committee, in the course of the speech in which he 
advocated the sale to the Postmaster General, said: 
"Another objection to the Corporation continuing to 
work the telephone system is the fact that it would be 
Municipal necessary to borrow at least a sum of 

Plant Obsolete $500,000, in order to make the neces- 
sary alteration on the switch-board and to carry on the 
system, and to meet the capital expenditure necessary 
in view of the increasing number of subscribers." 1 At 
the time of this speech, the number of the Corporation's 
subscribers had been all but stationary for a period of 
two years; and at the same time only about 55 per 
cent, of the Corporation's wires were in use. These 
facts led Engineering and other prominent British en- 
gineering journals to say that Mr. Alexander's speech 
was in effect an admission of the soundness of their past 
criticisms upon the Corporation's plant, to-wit, that it 
would cost fully $500,000 to bring the Corporation's 
exchanges to modern standards of efficiency. Engi- 
neering added that it was better that the Chancellor of 
the Exchequer should pay $500,000 too much, than that 
the agitation of the municipalities which owned tele- 
phone plants should be indefinitely prolonged. 

The Corporation had equipped its five main ex- 
changes with the so-called call-wire system. The 

1 Engineering ; July 13, 1906. 



324 THE TELEPHONE IN GREAT BRITAIN 

principle of that system is that two different wires run 
to each subscriber. One wire is used in calling the ex- 
change, and is attached permanently to the head tele- 
phone of the operator. The subscriber, on putting him- 
self in communication with the operator, must state 
his own number as well as that of the person whom he 
wants to call. At the end of the conversation he has to 
ask the operator to disconnect him. Only the person 
who originates the call can give the order to disconnect. 
The result, in practice, is that many wrong numbers are 
given, and that the originator often fails to give the 
order to disconnect, with the result that his line often 
is reported to be engaged, when in fact it is not in use. 
Again, since the call wire is made to serve many sub- 
scribers, during the busy time of the day it often 
happens that several persons call over the call wire at 
once, the one who calls loudest or most angrily gener- 
ally getting first service. For the service of large cities, 
the call-wire system was universally acknowledged to 
be antiquated in 1900, when the Corporation of Glasgow 
established its telephone system. The use of this 
system by the National Telephone Company 1 had been 
one of the reasons why the Company's service had 
proven unsatisfactory in Glasgow; and by August, 
1902, at the latest, the Company had established auto- 
matic signalling and clearing. 2 

Before the Select Committee of 1905, Mr. A. R. 

1 The Company introduced the call-wire system in Glasgow and 
Manchester, but in no other large city. 

2 The Electrician; August 15, 1902. 



MUNICIPAL TELEPHONE EXCHANGES 325 

Bennett, who had designed all of the municipal tele- 
phone plants then in existence, testified as follows : "It 
was impracticable for the corporations to adopt com- 
mon battery speaking because that system was covered 
by patents which were acquired by the National Tele- 
phone Company, so that they held the sole right to use 
those patents in the United Kingdom ; and, of course, 
they were not likely to grant licenses to their com- 
petitors. There are other reasons [for the failure of 
the municipalities to adopt central battery speaking], 
but that was the one which, I may say, choked off the 
municipalities when they considered the question in the 
first instance." On the other hand, Mr. John Gavey, 
Engineer-in-Chief to Post Office, testified: "Mr. 
Bennett himself appears to be a recent convert to auto- 
matic signalling 1 [and clearing] , because in the case of 
Glasgow, by far the largest exchange he has designed, 
he did not provide automatic calling and clearing ap- 
paratus at his main exchange, and I may add that I 
had considerable difficulty in inducing him to provide 
this automatic signalling in connection with the [Post 
Office] trunk service." 2 This testimony of Mr. Gavey, 
together with the further fact that the Post Office intro- 
duced central battery signalling as well as speaking in 
the Metropolitan London system opened in March, 1902, 

1 Glasgow Telephone Inquiry, 1897 ; q. 5200, Mr. A. R. Bennett 
argues that "vigilance is all that is required" in order to overcome 
the defects alleged to be inherent in the call-wire system. 

2 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 1256 to 1263, Mr. A. R. Bennett; and q. 1792, 
Mr. John Gavey. 



326 THE TELEPHONE IN GREAT BRITAIN 

would seem to indicate that it was not impossible to 
purchase of the Western Electric Company, the owners 
of the patents in question, the right to use the central 
battery signalling and speaking apparatus. It tends 
to support the contention of the critics of the Glasgow 
Corporation, to-wit, that the Corporation felt obliged 
to adopt an antiquated method in order to keep within 
the low estimate of the cost of establishing a telephone 
system which it had put forth ever since 1897. Be that 
as it may, it is obvious that, having adopted at the start 
antiquated machinery, the Corporation should have 
fixed its charges sufficiently high to be able to accum- 
ulate a depreciation fund which, in due time, should 
permit the Corporation to discard its antiquated plant. 
From that course, however, the Corporation was shut 
off by the fact that it had promised a tariff of $26.25 
a year for unlimited service. Under that tariff, com- 
bined with the additional tariffs described in the 
previous pages, the Corporation, after five years of 
operation, had accumulated a depreciation fund of 
$35730 only. 1 

Since the Postmaster General has acquired the 

1 Garcke : Manual of Electrical Undertakings, 1907; p. 1023; 
and The Municipal Year Book, 1907, p. 542. 

Revenue Expenditure Proportion 
per per borne by ex- 
Telephone Telephone penditure to 
in use in use revenue 
$ $ % 

1902 12.48 12.12 97.1 

1903 18.60 17.72 95.3 

1904 21.12 19.60 92.8 

1905 21.76 21.16 97.2 

1906 ,.. 21.76 21.73 99-9 



MUNICIPAL TELEPHONE EXCHANGES 327 

Glasgow municipal plant, he has announced in circulars 
and in the Post Office Guide that he will reconstruct 

Postmaster the main exchan & e at Glasgow. Since 

General "reconstruction" in this case means not 

wiliReequip only the re equipment of the central 
exchange, but also the replacement of every one of the 
12,800 subscribers' instruments in use, it is probable 
that when the Postmaster General shall have completed 
his work of reconstruction, he will find that he threw 
away not much less than $750,000 when he paid the 
Corporation of Glasgow $1,525,000 for its obsolete 
telephone plant. 

On August n, 1906, shortly before the purchase 
of the Glasgow Corporation's plant was effected, Mr. 
Sydney Buxton, Postmaster General, wrote the Cor- 
poration that it must be clearly understood that, should 
the Post Office purchase the plant, it would be neces- 
sary to revise the tariffs then enforced by the Corpora- 
Tariffs to be ti° n ) an d to adapt them to the altered 
Revised conditions under which the service 

thenceforth would be conducted, including intercom- 
munication 1 between the subscribers to the Post 
Office's system and the subscribers to the National 
Telephone Company's system. "The rates which it 
may be found necessary to fix will be applicable to new 

*At the Glasgow Inquiry of 1897, Mr. A. R. Bennett; Mr. S. 
Chisholm, Bailie ; Mr. J. Colquhoun, Corporation Treasurer, and Mr. 
D. M. Stevenson, Councillor, had expressed the most confident con- 
viction that the National Telephone Company would either grant 
intercommunication or lose all of its subscribers. Glasgow Tele- 
phone Inquiry, 1897; q- 5105, 4035, 4510 to 4513* 4746 and 4797. 



328 THE TELEPHONE IN GREAT BRITAIN 

subscribers, and to existing subscribers as their agree- 
ments become terminable/' 1 

While the Post Office was negotiating with the Cor- 
poration of Glasgow, the National Telephone Company 
informed the Corporation that they were prepared to 
National purchase the Corporation's plant at 

Telephone book value "and perhaps $100,000 to 

Company's Offer $ I50?000 morej a nd that they had no 

doubt but that they would be able to arrange for a 
continuance for a few years of the present subscription." 
The City Council rejected the offer by a vote of 45 
to 13. 2 

The Municipal Journal and some authors have cited 
the foregoing offer as proof that the Corporation's plant 
cannot have been obsolete, and that the Corporation's 
enterprise must have been financially sound. But the 
offer proves nothing upon either of those points. The 
Company could afford to pay the Corporation much 
more than market value for its plant. In the first place, 
the Company, in possession of the Corporation plant, 
would have been in a much better position to put its own 
plant into such shape as was desirable in view of the 
approaching sale to the Post Office, on December 31, 
191 1. In the second place, it was, as a mere matter 
of insurance against the contingencies of politics, 
worth a good deal to the Company not to have the 

1 The Municipal Journal; September 7, 1906. 

2 The Municipal Journal; September 14, 1906; and Engineering; 
July 13, 1906. 



MUNICIPAL TELEPHONE EXCHANGES 329 

Post Office become possessor of a telephone plant in 
Glasgow. The Agreement of 1905 had given the 
Treasury the power to fix the Company's tariffs in any 
area in which the Post Office should compete with the 
Company. Since the Treasury is the Government, and 
therefore subject to Parliamentary pressure ; and since, 
moreover, Glasgow has great influence in Parliament, 
it is obvious that the Company could not view with 
indifference the establishment of a Post Office telephone 
system in Glasgow. 

In October, 1906, the Postmaster General paid the 

Corporation of Brighton $245,000 for its telephone 

system, 1 which had been in operation since October, 

1903, and had acquired a little over 
Brighton Sells , ., r™ . , . 

2,000 subscribers. 1 he sum m question 

let the Corporation withdraw from its telephone venture 
with a loss of $I2,250. 2 Like Glasgow, the Corpora- 
tion had put its own wires underground, while denying 
the National Telephone Company that privilege. Ex- 
cept for exclusive line unlimited service, the Corpora- 
tion's tariffs had been somewhat higher than the Com- 
pany's tariffs. 3 On March 31, 1906, the Municipal 
Telephone Exchange had 2,035 telephones in use; and 
on December 31, 1906, the National Telephone Com- 
pany Exchange had 5,342 telephones in use. 

1 The Municipal Journal, October 26, 1906. 

2 The Municipal Year-Book, 1907; p. 542. 

3 Tariffs in force in the Brighton telephone area ; population, 
185,000. (Continued on page 330.) 



330 THE TELEPHONE IN GREAT BRITAIN 

The Postmaster General's first offer for the Brighton 
telephone plant had been $210,000. 

In March, 1906, the Postmaster General wrote the 
Corporation of Hull that he could offer for the Corpora- 
tion's telephone system only a price that "would fall 
Hull's Municipal considerably short of the actual ex- 
Exchange is penditure" upon the Corporation's 

Obsolete plant At the same time the National 

Telephone Company intimated that it was prepared to 
pay a price that would enable the Corporation to with- 
draw without loss from its telephone venture ; and that 
it would continue for three years to the Corporation's 
existing subscribers the Corporation's unlimited serv- 
ice rates. 1 In the following October, the Corporation 



National 

Corporation Telephone 

$ Company 

$ 

Exclusive line, unlimited service.. 27.50 50.00 

t* , . ,. , . plus 2 cts. plus 1 cent 

Exclusive line, measured service. . 17.50, „ 17.50, ,, 

' ' D per call ' ° ' per call 

Two-party line, unlimited service.. 21.00 15.00 

Four-party line, unlimited service. 15.00 

Ten-party line, measured service 2 cts. per call, sub- 

scriber guarantee- 
ing one call a day. 

Omnibus line $6.25 a year, and 1 

cent for each call 
in excess of 600. 

In addition, the Company made the following exclusive line, 
measured service rates: $25 a year with 1800 calls; $27.50 a year 
with 2500 calls ; $30 a year with 3000 calls ; $35 a year with 3500 
calls ; $40 a year with 4200 calls ; and $45 a year with 5000 calls. 
Additional calls, 1 cent each. 

1 Tariffs in force in the Hull telephone area ; population, 300,000. 

(Continued on page 331.)] 



MUNICIPAL TELEPHONE EXCHANGES 331 

resolved not to sell to either the Post Office or the Na- 
tional Telephone Company. 1 

The Corporation of Hull opened its exchange in 
November, 1904; and in March, 1906, it had 1,895 
telephones in use. On December 31, 1906, the Na- 
tional Telephone Company's exchange at Hull had 
6,716 telephones in use. 

In March, 1906, the Postmaster General wrote the 
Corporation of Swansea that he deemed 60 per cent, 
of the original cost of the telephone system a liberal 

Swansea's Mu- offen The Corporation's main ex- 
nkipal Exchange change he would be unable to use. 
is Obsolete Toward the end of 1906, the Post- 

master General offered $110,000 for the Corporation's 
plant, excluding the main exchange building, which 



National 
Corporation Telephone 

$ Company 

$ 
Exclusive line, unlimited service, 

for business premises 31.50 50.00 

Exclusive line, unlimited service, 

for private houses 25.00 25.00 

T? 1 • i* . 11 • , plus 2 CtS. plus 2 CtS. 

Exclusive line, toll service 15.00, H 1t 15.00, F „ 

per call ° ' per call 

In addition the Company offers the following tariffs : Two- 
party line, unlimited service, $25 a year; or toll service, 2 cents 
per message, subscriber guaranteeing 4 messages per day. Four- 
party line, unlimited service, $20 a year. Ten-party line, 2 cents a 
message, subscriber guaranteeing 4 cents per day. Omnibus line, 
$6.25 a year for 600 messages ; additional messages, 1 cent each. 
Exclusive line, measured service: 600 messages for $25 a year; 
1 100 messages for $30 a year; 1600 messages for $35 a year; 2100 
messages for $40 a year; 2600 messages for $45 a year. Additional 
messages, 2 cents each. 

1 The Municipal Journal; March 23 and October 19, 1906. 



332 THE TELEPHONE IN GREAT BRITAIN 

had cost $12,250. The Corporation's investment at 
that time was about $143,500. 

Early in 1907, the Corporation sold its telephone 
plant to the National Telephone Company. The price 
was $i43,5oo. 1 

The Corporation's exchange had been opened in 
November, 1903; and in February, 1907, it had ac- 
quired 1,215 subscribers, who used 1,465 instruments. 
In December, 1906, the National Telephone Company 
had 3,029 telephones in use in the Swansea telephone 
area. 

The Corporation's tariffs were as follows : unlimited 
service, $25 a year; measured service, $15 down, and 
2 cents for each call. The National Telephone Com- 
pany's Swansea tariff is as follows : exclusive line, 
toll service, $17.50 a year, and 1 cent per call; two- 
party line, exclusive service, $15 a year; ten-party line, 
2 cents per call, subscriber guaranteeing one call a day ; 
omnibus line, 600 messages, $6.25 a year, additional 
calls 1 cent each. Exclusive line, measured service, 
1,800 calls, $25 a year; 2,500 calls, $27.50 a year; 
3,000 calls, $30 a year; 3,^00 calls, $35 a year. Addi- 
tional calls 1 cent each. The population of the Swansea 
telephone area is 150.000. 

*The Electrician; January 4, and February 8 and 15, 1907. 



MUNICIPAL TELEPHONE EXCHANGES 333 

n M ., To the Corporation of Portsmouth, 

Portsmouth s 

Municipal also, the Postmaster General offered 

Exchange is materially less than the Corporation 

Obsolete i i • i . . 

had invested in its plant. 1 

In Portsmouth, population, 250,000, the Corpora- 
tion's tariff is : exclusive line, unlimited service, $29.37 
a year; exclusive line, toll service, $17.50 a year, and 
1 cent per call; $12.50 a year, and 2 cents per call; or 
$25 a year to cover 1,800 calls, with 1 cent per addi- 
tional call. The National Telephone Company's tariff 
is the same as in Brighton, except that there is neither 
an unlimited service rate, nor an omnibus line service. 

The Corporation's exchange was opened in 1903; 
and in December, 1906, it had 2,554 telephones in use. 
On the same date, the National Telephone Company 
had 4,269 telephones in use. 

The Corporation of Tunbridge Wells opened a tele- 
phone exchange in May, 1901 ; and sold out to the 
National Telephone Company in November, 1903. In 
the preceding municipal elections, several "telephone" 
candidates, among them the Chairman of the Telephone 
Tunbridge Committee, had been defeated. The 

Wells Sells National Telephone Company assumed 

the Corporation's telephone debt, and agreed to establish 
an exclusive line, unlimited service tariff of $30 a year. 
The Company also offers the following services: 
$17.50 a year, and 2 cents per call, the subscriber 
guaranteeing one call per day; ten-party line, 2 cents 

1 The Municipal Journal, March 16, 1906. 



334 THE TELEPHONE IN GREAT BRITAIN 

per call, the subscriber guaranteeing two calls per day. 
The Tunbridge Wells telephone area has a population 
of 70,000. 

The Chairman of the Select Committee of 1905, put 
the following question to Mr. H. Babington Smith, 
Permanent Secretary to Post Office since 1903 : 
"Taking the present Municipal experience, would your 
answer to the evidence given in favor 
Secretary to Post °f the Municipal systems, be that their 
Office on Muni- present experience is too short to form 

cipal Experience , . . •&» -»*- c -*.i i* j 

a sound opinion ? Mr. Smith replied : 

"That is my opinion in several respects. The cost of 
the telephone service is at the lowest point during the 
first years in which it is operating ; the plant is all new, 
and therefore the charge for maintenance is at its 
lowest point. Moreover, in some cases the maintenance 
of the plant is guaranteed by the contractor during the 
first year, or for a certain period. Then again, the 
wages and salaries of the directing and operating staff 
are at their lowest point. The operators, when they 
are first taken on, are willing to serve at low wages; 
but there is not the least doubt that in the course of 
three, four or five years their wages will gradually have 
to be raised, until eventually they reach the equilibrium 
which is represented by a continuing service. " Again, 
with the growth of the number of subscribers, "the 
cost of operation per subscriber grows, because .... the 
number of calls per subscriber tends to grow, each sub- 
scriber being able to communicate with more persons 



MUNICIPAL TELEPHONE EXCHANGES 335 

than before, and also the proportion of junction calls 
tends to grow. The Committee will have seen, by the 
diagrams handed in by Mr. Gavey, Engineer-in-Chief 
to Post Office, that both those elements tend to pro- 
duce an increase in the cost of operating." 1 

The municipalities that embarked in the telephone 
business were able to draw upon some twenty years' 
experience furnished by private enterprise; and they 
withdrew from their telephone ventures before their 
operating expenses, including depreciation, had reached 
the normal level. And yet, when the Postmaster Gen- 
eral came to value their plants, he could offer for those 
plants only 60 per cent, to 80 per cent, of the original 
cost. All of the municipalities had "ignored the general 
state of the art of telephone engineering/' 2 In the day 
of central battery working and automatic signalling 
and wires laid in conduits, "they had gone back to the 
days of magneto-generators, indicator switch-boards, 
local battery working" and armored cables. 

The municipalities also had adopted an obsolete tariff 
policy. In deference to a popular demand resting on 
misinformation, they had made the unlimited user serv- 
ice the keystone of their tariff schemes, though all 
well informed opinion was agreed that the only tariff 
that is at once financially sound and fair to all users 
of the telephone is the exclusive measured service tariff. 

In short, in the field of telephony the municipalities 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 21 19 and 2120. 

2 Engineering ; December 29, 1905, and January 19, 1906. 



336 THE TELEPHONE IN GREAT BRITAIN 

have shown the same inability to contribute aught to 
Inability to industrial progress that they had pre- 

Contribute to viously shown in the fields of gas light- 
Progress j n g.^ h orse street railways, electric street 

railways, electric lighting and the generation of elec- 
tricity in bulk for power purposes. 



CHAPTER XIX 

THE POST OFFICE MONOPOLY AND WIRELESS 
TELEGRAPHY 

The Government, in 1889, resolved to acquire the monopoly 
of submarine telegraphy to neighboring European countries. In 
1896, it failed to purchase the patents of Mr. Marconi, inventor 
of wireless telegraphy. In 1904, the Government carried the 
Wireless Telegraphy Act, largely for the purpose of protecting 
the revenues of the Government submarine cables. The Govern- 
ment curtails the use of wireless telegraphy, both across sea and 
overland. The Government hampers the Boy Messenger and 
District Service Companies, for the purpose of protecting the 
Post Office Monopolies. An episode from the reign of Charles II. 

When the Post Office Telegraph Monopoly was 
created, in 1869, there was no thought of extending it 
to submarine telegraphy. But when the Submarine 
State acquires Tele g ra P h Company, in 1889, applied 
Submarine to the Government for the renewal of 

Cables its license to use the foreshores for the 

purpose of landing its cables, the Government refused 
the renewal, anouncing that, in conjunction with the 
Governments of several States of Continental Europe, 
it had resolved to acquire and operate all cables between 
the United Kingdom and the neighboring Continental 
European countries. 1 The Submarine Telegraph 
Company was forced to sell to the Government. 

1 Report from the Select Committee on Post Office (Telephone 
Agreement), 1905 ; q. 2749 to 2752, Mr. H. B. Smith, Permanent 
Secretary to Post Office. 

22 337 



338 THE TELEPHONE IN GREAT BRITAIN 

In 1896-97, Mr. Marconi by means of a series of 
demonstrations proved to the Post Office the feasibility 
of telegraphy by means of the use of Hertzian waves. 
Marconi Patents Thereupon the Post Office, through Sir 
offered to State W. H. Preece, Engineer-in-Chief, of- 
fered Mr. Marconi a comparatively small sum for his 
invention. But the Marconi Wireless Telegraph Com- 
pany made a much larger offer, and secured the patent 
rights. 1 In the following year, 1898, Mr. J. C. Lamb, 
Assistant Secretary to Post Office, argued before the 
Select Committee on Telephones that the granting of 
any further telephone licenses was "open to the objec- 
tion that it would encourage further inroads on the 
Postmaster General's Monopoly." He said: "So long 
as the Government continues to give licenses for tele- 
phones, so long it will lay the Postmaster General's 
monopoly open to attack on behalf of every new inven- 
tion which comes into the field." 2 

In the year 1902, the transmission of signals across 
the Atlantic by means of wireless telegraphy created a 
"scare" among the holders of shares in British foreign 
submarine cable companies. 3 

In June, 1903, Mr. Austen Chamberlain, Postmaster 
General, was obliged to defend the Government against 
the charge of impeding the development of wireless 
telegraphy. He said : "The Post Office did every- 

1 The Electrician, May 3, 1907; Mr. J. Henniker Heaton's testi- 
mony before the Select Committee on Wireless Telegraphy, 1907. 

2 Report from the Select Committee on Telephones, 1898; q. 7801. 
a The Electrician, September 1, 1905; Sir W. H. Preece. Com- 
pare also, The Economist, May 23, 1893. 



THE WIRELESS TELEGRAPHY ACTS 339 

thing they could to assist what they thought might be 
a great progress in civilization, and they had neither 
shown a disposition to strangle the invention at its 
birth nor to prevent its development and success .... 
But they had, however, desired not to bind themselves 
to give away the rights of the Postmaster General in 
the same way in which they were given away in regard 
to telephones, before the importance of telephony was 
seen. For that action his predecessors and himself had 
never ceased to be criticized, and the Post Office had 
still to bear the burden." 1 

In August, 1904, the Government carried the Wire- 
less Telegraphy Act, 1904, which forbids the installa- 
tion and operation of wireless telegraphy stations, ex- 
Wireless Tele- ce Pt under license from the Postmaster 
graphy Act, 1904 General. The Act gives the Postmas- 
ter General unqualified power to refuse to grant a 
license. In support of the measure, Lord Stanley, 
Postmaster General, said: "There are two principles 
that I have endeavored to embody in this Bill : First, 
that safety for the nation in time of danger which 
should be secured by the Government being allowed to 
exercise control over wireless telegraphy ; and, secondly, 
that we should not allow a big monopoly to grow up 
which at some time the State might have to purchase. 
The advisability of securing the latter is very obvious 
when one regards the results of the telephone 
monopoly." 2 

1 Hansard's Parliamentary Debates; June 8, 1903, p. 284. 

2 Hansard's Parliamentary Debates; August 12, 1904, Lord Stan- 
ley, Postmaster General; and August 12, Lord Selborne, moving the 
Second Reading in the House of Lords. 



340 THE TELEPHONE IN GREAT BRITAIN 

The Wireless Telegraphy Act, 1904, was limited to 
two years; and in 1906, it was renewed to December 
31, 1909. In moving the Bill for the renewal, Mr. 
Sydney Buxton, Postmaster General, said that the 
Government desired to prevent a monopoly springing 
up, as well as to give the Post Office and the Admi- 
ralty control over wireless telegraphy. In the House 
of Lords, the Earl of Granard, in charge of the Bill, 
repeated the foregoing statement. 1 

Early in 1905, the Postmaster General prepared 
and issued for the instruction of the public a "Model 
Wireless Telegraphy License." That license forbade 

Wireless " the transmission h J wireless teleg- 

Telegraphy raphy of any telegram to or from any 

Restricted British possession or protectorate or 

foreign country, either directly or by means of any 
intermediate station or stations (whether on shore or 
on a ship at sea)." Upon this prohibition The Elec- 
trician 2 commented as follows : "We believe that should 
it happen that the Marconi Company succeeds in the 
near future in sending commercial messages across the 
Atlantic, i* will be permitted to proceed with this busi- 
ness under certain conditions, in view of its pioneer 
work in this direction, but that the transmission of 
other foreign or colonial wireless telegrams is not 
likely to be allowed." In the spring of 1906 were 
published the terms of the agreement made in August, 

1 Hansard's Parliamentary Debates; March 26, 1906, p. 967; and 
May 18, 1906, p. 747. 

2 March 17 and 24, 1905. 



THE WIRELESS TELEGRAPHY ACTS 341 

1904, between the Post Office and the several Marconi 
Companies. The instrument gives the Marconi Com- 
panies the right, for a period of fifteen years, to trans- 
mit wireless messages between the United Kingdom 
and North America, but adds that except in the case 
of Italy such permission will not be granted "in respect 
of messages to or from the Continent of Europe." 1 

Sometime in the year 1905, the General Interna- 
tional Wireless Telegraph and Telephone Company, 
Limited, applied for a commercial license to install 
Orling-Armstrong wireless stations in Metropolitan 
London and at Walters Ash and other places in Bucks. 
The application was refused "on ground that installa- 
tions were designed for the purpose of establishing ex- 
changes which would be in contravention of the Post- 
master General's ordinary telegraphic monopoly." 2 In 
the same year, the DeForest Wireless Telegraph 
Syndicate applied for a license to install stations at 
London, Manchester, Liverpool, Glasgow and Belfast, 
"for communication for purposes of the Press." The 
Postmaster General asked for further information, but 
since the DeForest Syndicate declined to comply with 
the request, the license was not granted. 3 

The foregoing facts show that the Government pro- 
poses as far as possible to limit the use of wireless 
telegraphy to the transmission of messages between 
shore stations and ships at sea ; that it will permit the 

1 The Electrical Review; May 11, 1906. 

2 Parliamentary Paper, No. 197, 1906. 
8 Parliamentary Paper, No. 197, 1906. 



342 THE TELEPHONE IN GREAT BRITAIN 

transmission of messages across the Atlantic; but that 
it will not permit transmission between the United 
Kingdom and Continental Europe, in competition with 
the submarine cables owned jointly by the British Post 
Office and the Governments of the several States of 
Continental Europe. 1 Finally, they show that the 
Post Office will not permit overland wireless teleg- 
raphy to compete generally with the Post Office Tele- 
graphs and Telephones, though it may conclude to 
permit competition in the transmission overland of 
newspaper press messages. It goes without saying 
that the foregoing limitations upon the use of wireless 
telegraphy are prompted solely by the desire to pro- 
tect the Post Office Telegraphs, Telephones and Sub- 
marine Cables; and that they are not required either 
for the purpose of securing the public safety in time of 
war, or for the purpose of preventing neighboring wire- 
less telegraphy stations from interfering with each 
other. The public safety would be fully secured by 
inserting in each license a clause authorizing the Gov- 
ernment either to exercise censorship or to assume 
actual operation in time of war. Interference between 
neighbcring stations can be prevented by the exercise 
of the power to prescribe the location of the several 
wireless stations, or by prescribing the wave-lengths, 
the wave energy and the damping to be used by the 
several competing wireless telegraphy companies. 



1 Compare The London Quarterly Review; April, 1906, Mr. F. 
James. 



THE WIRELESS TELEGRAPHY ACTS 343 

Turning from things large to things small, one finds 
the British Government hampering even the Boy Mes- 
senger and District Service Companies, in its desire to 
Petty Pro- protect the several Post Office monop- 

tective Measures lies. In April, 1891, Mr. Cecil Raikes, 
Postmaster General, stated that the Government had 
brought action against those companies for infringe- 
ment of the Postmaster General's monopoly; and that 
subsequently it had licensed the companies on the fol- 
lowing conditions. The companies were not to em- 
ploy the telephone, they were to pay $125 a year, and 
60 cents per call box in use. Finally, a two cent stamp 
must be affixed to every letter delivered by messenger ; 
and no messenger must take more than six letters at a 
time from one sender. 1 

In May, 1904, Colonel Lockwood, M. P., stated that 
the Manager of the London District Messenger Serv- 
ice recently had brought from the United States a mes- 
senger call box with telephone attachment. At pres- 
ent one could only ring for a messenger and must then 
sit down and wait to learn whether a messenger would 
come. With the American call box in use, one would 
be able to telephone to the office to ascertain whether 
or not a messenger could be sent. But the Postmaster 
General had refused to permit the use of the American 
call box. The Postmaster General, Lord Stanley, re- 
plied that he would reconsider the matter; but he was 
very much afraid of "the thin edge of the wedge," and 
viewed all such innovations with the greatest suspicion. 2 

1 Hansard's Parliamentary Debates; April 16, 1891, p. 683. 
2 Hansard's Parliamentary Debates; May 12, 1904, pp. 1260 and 
1267. 



344 THE TELEPHONE IN GREAT BRITAIN 

Many things change and pass away; but the spirit 
of the State Monopoly changes not. "In the reign of 
Unchanging Charles H > an enterprising citizen of 

Spirit of State London, William Dockwra, set up at 
Monopoly great expense a penny post which de- 

livered letters and parcels six or eight times a day in 
the busy and crowded streets near the Exchange, and 
four times a day in the outskirts of the capital. The 
improvement was, as usual, strenuously resisted .... 
The utility of the enterprise was, however, so great 
and obvious that all opposition proved useless. As 
soon as it became clear that the speculation would be 
lucrative, the Duke of York complained of it as an in- 
fraction of his monopoly, and the Courts of Law de- 
cided in his favor." 1 

Before concluding, mention should be made of an- 
other bit of testimony given by Sir W. H. Preece 
before the Select Committee on Wireless Telegraphy, 
1907. 2 Said Sir W. H. Preece : "I have not the slight- 
est doubt about it ... . the whole effect of the Marconi 
Company has been to check, and really to stop, the 
growth of wireless telegraphy, both as a convenience 
to navigation and as a commercial undertaking.'' The 
witness was referring to the fact that the Marconi In- 
ternational Marine Communication Company had 
made with Lloyds a fourteen year contract binding the 

1 The Daily Graphic; December 26, 1906, Mr. Harold Cox, M. P., 
quotes from Macaulay's History of England. 

2 The Electrician; May 10, 1907. 



THE WIRELESS TELEGRAPHY ACTS 345 

Lloyds signal stations to refuse to hold communication 
with vessels employing any wireless telegraphy system 
other than the Marconi system. If, for argument's sake, 
Sir W. H. Preece's criticism be accepted as sound, the 
policy of the Marconi Company still fails to constitute 
an argument in favor of public ownership. For noth- 
ing is to be gained by substituting public ownership for 
private ownership, if public ownership is to develop the 
shortcomings and failings of private ownership, in ad- 
dition to its own peculiar shortcomings and failings. 

One of the noteworthy facts about the restrictions 
put upon the use of wireless telegraphy by the Post- 
master General, was the acceptance of those restrictions 

with very little protest either from the 

Conclusion • i ... 1 1 • r 

wireless telegraphy companies or from 

citizens anxious about the industrial progress of Great 
Britain. Those who felt either an interested or a dis- 
interested prompting to protest, realized that nothing 
would be gained by yielding to the prompting. With 
the general public the presumption in the State's favor 
was too strong to be shaken. The main reason why 
that presumption was so strong, was the unfair criti- 
cism that for years past had been passed upon the Na- 
tional Telephone Company by many statesmen of local 
and national fame. Even the brief speeches upon the 
subject of wireless telegraphy made by Mr. Austen 
Chamberlain, Postmaster General, and by Lord Stan- 
ley, Postmaster General, had not been free from inac- 



346 THE TELEPHONE IN GREAT BRITAIN 

curate but most effective allusions to the National 
Telephone Company. Mr. Austen Chamberlain had 
said the Government had "desired not to bind them- 
selves to give away the rights of the Postmaster Gen- 
eral in the same way in which they were given away 
in regard to telephones, before the importance of 
telephony was seen." As a matter of fact, the rights of 
the Postmaster General never were "given away." In 
1 88 1 the Postmaster General waived his monopoly 
rights in consideration of the fact that the owners of 
the telephone patents waived their right to appeal from 
the decision of Mr. Justice Stephen; and in considera- 
tion of the further fact that the telephone companies 
agreed to pay the Post Office ten per cent, of their 
gross receipts. The relaxation of restrictions in 1884 
was not made by way of a gift to the telephone com- 
panies, but in response to the public demand for a more 
adequate telephone service. The transactions between 
the Government and the National Telephone Company 
in 1892, 1 90 1 and 1905 were so overwhelmingly in 
favor of the State as to amount almost to what we 
Americans term the taking of property without due 
process of law. Lord Stanley had said : " . . . .we should 
not allow a big monopoly to grow up which at some 
time the State might have to purchase. The advisability 
of securing the latter is very obvious when one regards 
the results of the telephone monopoly." The monopoly 
of the National Telephone Company from 1892 on was 
a qualified one; it being qualified by the fact that the 



THE WIRELESS TELEGRAPHY ACTS 347 

State held over the Company the threat of competition 
from the municipalities or from the Post Office itself, 
should the Company neglect its public duty or abuse 
its position of qualified monopoly. Nor had any per- 
son ever succeeded in showing that the qualified 
monopoly held by the National Telephone Company 
had worked adversely to the public interest. The al- 
leged necessity of the State purchasing the property of 
the National Telephone Company in no way rested 
upon the manner or the spirit in which the National 
Telephone Company had discharged its duties to the 
public. That alleged necessity rested upon the desire 
of the State to acquire the profits of the business which 
the Company had upbuilt ; and the resolve of the Gov- 
ernment to yield to the misinformed public opinion 
which Great Britain's municipal and national states- 
men had produced. 



CHAPTER XX 

CONCLUSION 

In a number of important respects the story of Great 
Britain's telephone policy resembles the story of muni- 
cipal ownership in Great Britain. In the first place, 
there is the inability of either State or Municipality to 
take up an invention and develop it from a successful 
laboratory device to an established industry. In the 
fields of gas-lighting, horse street railway transporta- 
tion, electric lighting, electric street railway transporta- 
tion and the so-called generation of electricity in bulk, 
the Municipality deliberately left to private enterprise 
the pioneer work of establishing the industry. Simi- 
larly the State refused to take up the telephone. Sub- 
sequently it failed to cooperate permanently with the 
inventor who first promised to put wireless telegraphy 
to commercial use. The main reasons for this fatal 
defect of the policy and practice of public ownership 
have been the unwillingness of the municipal and na- 
tional statesmen to speculate with the taxpayer's 
monies; and the inability of those statesmen to resist 
the illegitimate demands made upon them the moment 
they enter upon industrial ventures that touch the 
^pocket-book nerves" of their constituencies. The 

348 



CONCLUSION 349 

municipal and national statesmen know that the taking 
hold of an invention always is a speculation, and often- 
times is a gamble. They will not speculate with the 
public funds, no matter how legitimate the cause; for 
failure would give their political opponents too good 
an opportunity to ride into power. They know also 
that the pioneer work of upbuilding a new industry 
can be undertaken only by men who are in the position 
to act with an eye single to the business aspects of their 
venture; that it cannot be undertaken by men whose 
first business ever must be to consider the exigencies of 
politics. 

But although the State and the Municipality cannot 
upbuild a new industry, they have enunciated and en- 
forced the doctrine that when an industry is "ripe," it 
must be made to fall into "the public's lap." They have 
established the doctrine that the public may take the 
"ready made" industry at the cost of the replacement 
of the plant, and with no allowance to the industrial 
pioneer for past losses or the prospect of future profits. 
Reduced to simple terms, this doctrine is, that the in- 
dustrial pioneer renders society no service for which 
society ought to pay him. In its effect, it is one of the 
greatest blows at industrial progress that ever the pub- 
lic authority has struck in Great Britain. For the 
doctrine destroys private initiative, which public initia- 
tive cannot replace. 

In support of this doctrine, which already has 
hampered enormously Great Britain's industrial de- 



350 THE TELEPHONE IN GREAT BRITAIN 

velopment, the Municipalities cite the fact that they 
were made to pay heavily for the "future prospects" 
of the water works and gas works which they bought 
"ready made/' with an established clientelage, a trained 
staff and a highly developed engineering art and science. 
They say that the latter things are not "tangible assets." 
They ignore the fact that the subsequent growth of 
the cities justified the price paid for the future pros- 
pects of the water works and gas plants. The State 
alleges that it was made to pay an "exorbitant" price 
for the telegraphs, overlooking the fact that it paid it 
with its eyes open. It overlooks the fact that it paid a 
high price because it — that is, the Disraeli Govern- 
ment — was playing the great game of politics when it 
inaugurated the policy of State telegraphs in 1868. It 
overlooks the fact that in consequence of the growth of 
industry and population after 1870, the purchase of 
the telegraphs would have proved a good bargain, had 
not every Ministry from 1870 on permitted the exi- 
gencies of politics to play a prominent part in the ad- 
ministration of the State telegraphs. 

The State and the Municipality also have developed 
the doctrine that once the public authority has pur- 
chased a "ready made" industry, that industry must be 
protected against competition from new and rival in- 
dustries. The desire to protect the municipal gas 
plants from the electric light was an important con- 
sideration in the enactment of the Electric Lighting 
Act, 1882, which for six long years excluded from the 



CONCLUSION 351 

United Kingdom the central electric light station. 
Since 1898, the desire to protect the local municipal 
electric light plants has been permitted to impede the 
spread of the so-called electricity-in-bulk generating 
and distributing companies. The desire to protect the 
State telegraphs from the telephone, led to the impo- 
sition of the restrictions incorporated in the telephone 
licenses of 1881 and 1884; it led to the denial, down to 
1892, of all way-leaves in the streets; and it led to the 
compulsory sale of the long-distance telephone lines in 
1892. More recently the desire to protect the State 
telegraphs and the long-distance telephone service, has 
led the State to prohibit the sending of overland wire- 
less telegraphy messages, except for experimental pur- 
poses and for the newspaper press. At the same time 
the desire to protect the State's interest in the submarine 
cables to France, Germany and Holland has led the 
Government to insert in the "Model License" the pro- 
hibition of the use of wireless telegraphy apparatus "for 
the transmission of any telegram to or from any Brit- 
ish possession or protectorate or foreign country, either 
directly or by means of any intermediate station or 
stations, whether on shore or on a ship at sea." 

In passing, it may be added that it goes without say- 
ing that individuals and companies use the monopoly 
rights conferred by British patent law in the same 
spirit in which the State has used the monopoly con- 
ferred by the Telegraph Act, 1869. But the monopoly 
conferred by the patent law is limited to fourteen years, 
whereas the telegraph monopoly is perpetual. 



352 THE TELEPHONE IN GREAT BRITAIN 

Great power, wherever lodged, is liable to be abused. 
The only protection against that grave danger lies in 
the slow and laborious process of upbuilding a public 
opinion that shall be so honest and intelligent that 
power cannot be abused, no matter where lodged. The 
United Kingdom's experience under State ownership 
and municipal ownership adds one more instance to the 
long series of instances proving that legislation cannot 
take the place of education. The practice of municipal 
ownership has transferred to the Association of Mu- 
nicipal Corporations, which has been aptly termed a 
trade union of Town Clerks, the political power once 
held by the municipal public service companies. The 
present Lord Chief Justice of England, Lord Alver- 
stone, on the strength of sixteen years' experience as a 
Member of the House of Commons, has said that "only 
those who had been in the House of Commons knew 
the really almost unfair weight and power which muni- 
cipal bodies had in the House .... Without fear of con- 
tradiction he could say that the question [before the 
House] under those circumstances [of intervention 
by the Association of Municipal Corporations] was 
not fairly determined upon its merits, and was not 
fairly discussed. Being no longer in politics he had 
no right to express any opinion upon the merits of the 
case [municipal ownership] , beyond saying that it was 
a question of such" vast importance that it ought to be 
thoroughly understood and tested upon its merits and 
not dealt with by any considerations of popularity, 
public sentiment, or anything of that kind." 



CONCLUSION 353 

In 1892, the Association of Municipal Corporations 
compelled the Government to give the municipalities 
the power to veto the exercise of any way-leave powers 
that the Postmaster General should see lit to let the 
telephone companies have. The Government yielded 
reluctantly, for the municipalities had misused not only 
the power of veto given them by the Tramways Act, 
1870, but even the power of provisional veto given 
them by the Electric Lighting Act of 1888. From 
1892 to 1896, the municipalities persisted in the futile 
attempt to use their power of veto for the purpose of 
compelling the National Telephone Company to per- 
mit them to fix the Company's tariffs. With that 
effort, the Government itself did not sympathize. 

No one would deny that the policy of private owner- 
ship gives rise to grave abuses in a community in which 
public opinion is not ever watchful as well as intelligent, 
to say nothing of the community in which there is more 
or less personal corruption among municipal and na- 
tional statesmen, as well as among business men and 
financiers. On the other hand, the experience of Great 
Britain teaches that equally grave abuses are possible 
under the policy of public ownership, if public opinion 
is not ever watchful and intelligent. Such abuses are 
possible even in the absence of statesmen who insist on 
being bribed, and of business men and financiers who 
are willing to practice bribery. The blindness of the 
British people to their interests as consumers of the 
23 



354 THE TELEPHONE IN GREAT BRITAIN 

services offered by the public service companies has 
been astounding; and the misuse of power on the part 
of the Government and the Municipalities has been no 
less astounding. In 1884, 1885 an< ^ 1888, the British 
Government, desiring to protect its telegraphs against 
competition from the telephone, refused to permit Par- 
liament even to consider the telephone companies' ap- 
lications for way-leaves in the streets. In the years 
1892 to 1895, the Association of Municipal Corpora- 
tions persuaded all but three of the municipalities in 
the United Kingdom not to let the National Telephone 
Company have any way-leaves in the streets. The 
citizens of Glasgow permitted a handful of municipal* 
statesmen to persuade them not to permit the National 
Telephone Company to make its service in Glasgow 
either adequate or efficient. The statesmen in question 
wished the service to remain inadequate and inefficient, 
in order that they might use the resulting popular dis- 
satisfaction for the purpose of forcing the Government 
to abandon its policy of not granting municipalities 
telephone licenses. The conduct of the municipalities 
down to the close of 1895 reminds one of the period 
which came to a close with the enactment of the Cor- 
porations Act of 5 and 6 William IV. In that period 
the municipal corporations, in spite of the splendid 
services which they had rendered in some directions, 
had been "the lurking places of narrow prejudices, 
flagrant abuses, and ignorant restrictions; so much so 
that at the time of the inquiry into the Municipal 



CONCLUSION 355 

Corporations prior to the new Corporations Act of 
5 and 6 William IV., it was a saying that for a 
town to be without a charter was to be without 
a shackle, and it was seriously contended that the 
prosperity of such communities as Birmingham was 
due to the fact that they had no Corporation to repress 
their industries, and had been governed like the villages 
by the Justices of the Peace. That there was ground 
for such criticism was proved — to take a well-known 
example — by the way the inventor of the steam engine 
was treated by the Corporation of Glasgow. Because 
he was not a member of the Hammermen's Guild, they 
refused to allow him to put up his forge for experi- 
mental purposes in the city, and it is quite possible that 
had it not been for the liberality of the University, 
whose precincts were outside the city jurisdiction, and 
who gave Watt a refuge there, this bigoted interference 
of Municipal Government might have deprived the 
British people of their supremacy in steam engineering 
as effectively as the meddlesomeness of their modern 
successors has destroyed their prospect of obtaining 
that footing in the electrical world which was their 
just inheritance." 1 

Upon inquiring how was made the public opinion 
that permitted the Government and the Municipalities 
so to abuse their powers, one finds as follows : Down 
to the amalgamation of the telephone companies in 
1889-90, with its injection of some $6,000,000 of 

1 Dixon H. Davies : English Local Government, its Advantages 
and Defects, published by the London Municipal Society. 



356 THE TELEPHONE IN GREAT BRITAIN 

"water" into a capitalization representing an actual 
expenditure of some $9,000,000, public opinion was 
made mainly by two factors. The first was the errone- 
ous opinion that the financial failure of the experiment, 
of national telegraphs had been caused by the high price 
paid for the telegraphs. The second factor was the 
public prejudice against public service companies of 
every kind, which prejudice had been created by the 
advocates of the municipalization of the so-called 
municipal public service industries. The public had 
heard so much about the necessity of the City retaining 
an absolutely exclusive interest in the streets, and the 
undesirability of admitting "dividend seeking" com- 
panies, that it allowed the municipal statesmen to coop- 
erate wth the Government in excluding even the Post 
Office's licensees, the telephone companies. When those 
arguments were presented to the Commissioner ap- 
pointed to inquire into the telephone service at Glas- 
gow, he denominated them "somewhat high-flown talk," 
"absurd" and "self-condemned." He pointed out that 
there was much confusion in the public mind as to the 
nature of the public's property in the streets. That 
"the solum, or the property in the land traversed by the 
streets, as a rule, belongs to the proprietors on each 
side, and the streets are only vested in the Corporation 
by Act of Parliament for certain public purposes, the 
main one being the use of the surface for public traffic, 
and the subsidiary purposes being such as the construc- 
tion of sewers and the laying of gas and water pipes," 



CONCLUSION 357 

and "that everything beyond that remains the property 
of the abutting owners." In the case of the Postmas- 
ter General versus the City of London, Mr. Justice 
Wright, in an obiter dictum, said that in his opinion 
the objections which the municipalities had a right to 
raise against the streets being opened for the purpose 
of laying telephone wires must be objections which 
concerned them as the road authority, that is, as the 
guardians of the rights and the convenience of the pub- 
lic as users of the streets. 

After the telephone company amalgamations of 
1889-90, public opinion was influenced very largely by 
the erroneous opinion that the National Telephone 
Company was making unduly large profits upon the 
money actually invested, and that, therefore, the tele- 
phone charges were too high. That opinion was 
launched by the Duke of Marlborough as the promoter 
of a competing telephone company; and subsequently 
it was kept alive by the London County Council, the 
City of London, Glasgow and other municipalities that 
wished to compel the Government to permit them to 
install municipal telephone exchanges. Under those 
circumstances public opinion permitted the municipali- 
ties to persist from 1892 to 1896 in the policy of with- 
holding way-leaves from the National Telephone Com- 
pany, for the purpose of compelling that company to 
submit to the municipalities fixing the telephone 
charges. 

Political expediency was the main factor in the adop- 



358 THE TELEPHONE IN GREAT BRITAIN 

tion of the policy of State telegraphs in 1868 and 1869. 
It was the main factor in the failure of successive 
Governments to amend the Tramways Act, 1870, after 
the defects of that Act had been fully established. It 
was the main factor not only in the enactment of the 
Electric Lighting Act, 1882, but also in the Board of 
Trades' interpretation and administration of the 
Amending Electric Lighting Act of 1888. But greater 
and more unjustifiable concession was made to political 
expediency in 1898 and 1899, than had been made at 
any previous time. In 1898, the Salisbury Ministry 
permitted one of its Members, Mr. R. W. Hanbury, 
Financial Secretary to the Treasury, to make himself 
the Parliamentary champion of the municipal states- 
men that demanded that the Government abandon its 
past policy of refusing to grant the municipalities tele- 
phone licenses. Mr. Hanbury so skilfully played upon 
the popular misconceptions concerning the National 
Telephone Company, that he succeeded in overthrowing 
the policy which his Party had established in 1892. In 
the words of Sir William Vernon-Harcourt, Chancellor 
of the Exchequer from 1892 to 1895, that policy had 
been to make the National Telephone Company "the 
temporary agents" of the Government until the Post 
Office should assume the entire telephone business, on 
December 31, 191 1. Provided, that the Government 
could find other agents, should the National Telephone 
Company acquit itself unsatisfactorily. 1 Under the 

1 Hansard's Parliamentary Debates; March i, 1895, p. 235. Com- 
pare also the statements of The Economist of April 2, June 4 and 



CONCLUSION 359 

guidance of Mr. Hanbury, the Select Committee on 
Telephones, 1898, reported that public necessity and con- 
venience demanded that either the Government or the 
Municipalities should enter upon immediate, all-round 
and effective competition with the National Telephone 
Company. The Report of the Committee and the re- 
sulting Telegraphs Act, 1899, knocked 25 per cent, off 
the value of the securities of the National Telephone 
Company; and promoted Mr. Hanbury to a Cabinet 
Office in the reorganization of the Salisbury Ministry 
in November, 1900. In all other respects the Act of 
1899 was an utter failure. 

In 1 90 1 and 1905, respectively, the Government 
attained the object at which it had aimed ever since 
1 88 1, namely, the right to purchase on December 31, 
191 1, at cost of replacement, and with no allowance 
for earning power, the property of the National Tele- 
phone Company. 

In the year 1906, one person in every one hundred 
and five persons in the United Kingdom was a sub- 
scriber to the telephone. On January 1, 1907, one 
person in every twenty persons in the United States 
was a subscriber to the telephone. With every possible 
allowance for the so-called conservatism of England 
and Scotland, one cannot escape the conclusion that 
Great Britain is very far from the position which it 

July 30, 1892, to the effect that the Government proposed to enter 
into a co-partnership with the National Telephone Company. 



360 THE TELEPHONE IN GREAT BRITAIN 

might attain were free scope given to British captains 
of industry and financiers. 

The National Telephone Company never has been in 
a position to pursue very actively the policy of popular- 
izing the telephone. The uncertainty as to what would 
become of its property after December 31, 191 1, always 
has set very definite limits to the amount of money that 
it could raise; and those limits have been very much 
this side of the sum that would have been required to 
give telephone service to one in every twenty of the 
inhabitants of the United Kingdom. Again, the tele- 
phone cannot be brought into very extensive use, ex- 
cept on the system of a reasonably low toll service. On 
the other hand, reasonably low toll rates cannot be 
given under the retention of the unlimited user service ; 
upon that point all telephone experts are in agreement. 
The National Telephone Company's position always 
has been so insecure that the Company has been unable 
to brave public opinion to abolish the unlimited user 
service. Therefore it has been unable to establish such 
measured service rates as would have brought the tele- 
phone into much more general use. 

In 1904, when the Company's license had only seven 
more years to run, the Company practically had reached 
the end of its credit. The investing public would 
furnish no more money on a license of only seven more 
years of life. Under the agreement reached in 1905, 
the Government has agreed to provide additional ex- 
change facilities and subscribers' lines on annual rental, 



CONCLUSION , 361 

but the terms are such that the General Manager of the 
Company has said that the Company will make only a 
somewhat restricted use of the Government's offer. 
The Chairman of the Company has added that the 
Company will make no further effort to develop busi- 
ness that requires time and nursing, but will limit itself 
to investments that will prove remunerative from the 
start. Moreover, the Company still labors under the 
inability to abolish the unlimited user service. There 
is, therefore, no prospect of the telephone coming into 
such general use, between now and December 31, 191 1, 
as it might come into, were English captains of industry 
and financiers given a free hand. 

The injury done to the people of Great Britain by 
the telephone policy of the Government and the Munici- 
palities by no means is limited to the restriction, past 
and future, of telephone facilities. The compulsory 
sale of the trunk lines in 1892, with no allowance for 
good-will; the violation, in 1899, of "the equity of the 
understanding" reached in 1892, when the Government 
to all intents and purposes entered into a partnership 
with the National Telephone Company; and the 
numerous demonstrations that neither Parliament nor 
the Government will be a bulwark against misguided 
public opinion, when such public opinion is directed 
against public service companies that require way-leaves 
in the public streets; seriously have shaken the faith 
of British captains of industry and financiers in the 



362 THE TELEPHONE IN GREAT BRITAIN 

inviolability of the rights of private property where 
such property is dependent upon the right to use the 
streets, or where the interests of private property con- 
flict with the interests of the State and the Municipality 
as the owners and operators of trading ventures. 

Every violation of the rights of private property 
strikes at the very springs of progress. None does so 
more surely and fatally than does the violation of the 
rights of the inventor and of the person who under- 
takes the hazardous task of developing an invention 
from an ingenious mechanical device or scientific toy 
into a paying machine or article of trade in daily use 
with hundreds of thousands of people stretching from 
the largest cities to the remotest villages. Upon this 
point, one can quote no better authority than Lord 
Avebury (formerly Sir John Lubbock), who, through- 
out his long and singularly busy life, has concerned 
himself with the commercial development of inventions. 
Says Lord Avebury: "Capitalists are to a great ex- 
tent the brains of industry. Thinking is the hardest 
work a man can do. Even when, as has often happened, 
the workman of genius makes an important suggestion 
or an ingenious invention, he has always found the need, 
not only of capital, but of the capitalist. It is the 
capitalist who organizes manufactures. Hargreaves 
and Arkwright made almost the same invention. 
Hargreaves found no capitalist to help him, and died 
poor; Arkwright found Strutt, and died rich." 1 

1 Lord Avebury: On Municipal and National frading, p. 150. 



CONCLUSION 363 

Again : "All those who have had to do with patents 
know how risky they are. For one patent which gives 
a profit, ten leave a loss. . . . That is a reason why we 
should ask the Government to deal fairly and even liber- 
ally with patents of this kind 1 {i.e., the National Tele- 
phone Company). Lord Avebury added that the orig- 
inal investors in National Telephone Company stock 
were receiving only 7 per cent, on their money. 

Upward of thirty-five years of experience has shown 
that inventors will not find their Strutt in either the 
British Government or the British Municipalities. That 
those bodies are mere imitators, incapable of contrib- 
uting any thing to industrial progress. And yet, those 
bodies hunger after the rewards so rarely reaped by 
those who do undertake to contribute to industrial 
progress, at the cost of great labor and anxiety. Their 
creed was enunciated in 1899 by Mr. R. W. Hanbury, 
Financial Secretary to the Treasury, and Representa- 
tive of the Postmaster General in the House of Com- 
mons. Mr. Hanbury's statement was, that it would 
be folly for a public authority to pay the market price 
for an industry "ready made," since, by the exercise of 
the power to legislate, the industry, when ripe, could 
be made to drop into the public's lap. 2 

The break-down of public opinion in consequence of 
the failure of the public to discern its long-run inter- 

1 Hansard's Parliamentary Debates; June 20, 1899, p. 135; and 
March 6, 1899, p. 141 5, Sir John Lubbock (now Lord Avebury). 
2 Hansard's Parliamentary Debates; June 20, 1899. 



364 THE TELEPHONE IN GREAT BRITAIN 

ests, has been the principal factor that has shaped Great 
Britain's telephone policy ; just as it has been the main 
factor that has shaped the working of the practice of 
municipal ownership. The failure of public opinion 
to protect the people from abuse and misuse of power 
by the State and the Municipality is the more note- 
worthy, since public opinion on the whole had ade- 
quately protected the public against abuse of power on 
the part of the public service companies which were dis- 
placed when the State took over the telegraphs, and 
the Municipalities so largely took over the so-called 
municipal public service industries. 



INDEX 



Adventure, The Spirit of, a price- 
less quality in a nation, 33 

Agreement of 1901, The Metro- 
politan London, 269-86; reached, 
274; terms of, 274-75; rates un- 
der, 275-76; accepted by the 
Commons, 276-78; did not cause 
appreciation of shares of Tele- 
phone Company, 278 

Agreement of 1905, 287-311; en- 
tered into, 294; conditions of, 
294-98; Select Committee ap- 
pointed on, 298; warded off dan- 
ger of arrest of investment of 
capital, 310 

Agreement reached by Government 
and National Telephone Com- 
pany, 59, 1 1 5-16, 189, 199; ac- 
cepted by House of Commons, 
60; Select Committee appointed 
on, 116; opposition to, 116 

Agreement with the Marconi com- 
panies, 340-41 

Alverstone, Richard Evered, Lord, 
on the political power of the 
Association of Municipal Cor- 
porations, 91-92, 245-46, 352 

Amalgamations of 1889-90, 30-38; 
United, National, and Lancashire 
companies amalgamated into Na- 
tional, 31; completed, 34 

American Bell Telephone Company, 
Exchanges operated by, 15 

American call box, Use of the, re- 
fused, 343 

American Telephone and Telegraph 
Company, Yearly investment of 
the, 293-94. 

Ardwall, Andrew Jameson, Lord, 
see Jameson, Andrew 

Areas, Mr. Hanbury's insinuations 
as to large, 184-86; Arnold Mor- 
ley on, 186 

Areas allowed to Telephone com- 
panies restricted, 12; limitations 
of, removed, 18; State to de- 
365 



marcate local telephone areas, 51- 
56 

Association of Chambers of Com- 
merce on inadequacy of trunk 
telephone service, 69 

Association of Municipal Corpora- 
tions demanded for local authori- 
ties veto power over telephone 
way-leaves, 5; political influence 
of the, 5, 7, 91; obtained absolute 
veto power for local authorities, 
87-89; demands that Parliament 
fix maximum prices and dividend 
of National Telephone Company, 
89, 184; refused by Government, 
89-90; Lord Alverstone on the, 
91-92; resolutions of Special 
Committee of, on Act of 1892, 
93-94; completely disregarded 
rights of public for five years, 
97; forced the policies of succes- 
sive Governments, 123; demands 
of, in resolutions, 203-4; cited, 
242; political power of, 245-47, 
352; money spent by, in opposing 
private companies, 246, 286; ap- 
proved Agreement under belief 
that the State would reduce the 
tariffs, 311; compelled the giving 
of veto power on way-leaves, 353 

Association of Telephone Sub- 
scribers in London, 101 

Australian Colonies, Burdens on 
tax-payers in, 73 

Automatic signalling, 325-26 

Avebury, John, Lord, on the in- 
jurious influence of the Associa- 
tion of Municipal Corporations, 
247; on capitalists, 362-63 

Balfour Ministry, The, in 1905 
repealed the legislation of 1899, 

237 
Begg, E., Statement of, showing 
Edinburgh's dislike of National 
Telephone Company, 173-74 



366 



INDEX 



Bell and Edison patents, Expiration 
of, 35 

Benn, J. W., moved that Argeement 
be not confirmed, 60; estimate of, 
accepted by London County 
Council, 109-10; motion, in op- 
position to the Agreement, 116; 
misleading testimony of, 129-30; 
misstatement as to appreciation 
of shares by the Agreement, 277- 
78 

Bennett, A. R., approved engineer- 
ing estimates of the New Tele- 
phone Company, 100; submitted 
estimate in 1898, 108; before 
Select Committee of 1898, 217- 
18; estimates proved wrong, 218; 
statement of ascertained cost of 
installing Glasgow telephone sys- 
tem, 313; on common battery 
speaking, 325 

Bill authorizing $5,000,000 for pur- 
chase of National Telephone 
Company's trunk lines, 50 

Bill to authorize local authorities 
to raise or apply money for tele- 
phones, 239-40 

Bills asking for way-leaves not 
allowed by Government, 41, 82- 
83, 205 

Binnie, Sir Alexander R., prepared 
engineering estimates in 1895 for 
London County Council on $50 
a year service, 105, 106-7, XI 9; 
estimate in 1898, 108; had no 
practical experience, 107; before 
Select Committee of 1898, 217; 
estimates of proved wrong, 217 

Birmingham telephone area broken 
up, 53-54 

Blue books, Parliament and the 
public too busy to read, 192 

Boscawen, G., seconds motion of 
J. Caldwell, on licenses, 178 

Boy messenger service hampered, 
343 

Bribing bills, Annual government, 
72 

Brighton, Corporation of, has never 
granted way-leaves to National 
Telephone Company, 6, 95; tele- 
phone venture of, a failure, 7; 
put municipal wires underground, 
95; trouble in, 136; refused way- 
leaves, 255; sells its plant, 329- 
30; tariffs in Brighton area, 329- 
3on 



British public, Poor prospect of 

adequate service for, 310, 311; 

astounding blindness of, 353-54 
Buncrana, Guarantee demanded for 

exchange at, 263 
Bureaucracy, A gigantic, building 

up, 247 
Business undertakings, Commons 

cautioned against, 22 
Buxton, Sydney, on new tariffs for 

Glasgow, 327-28 

Cabinet, Decision of the, against 
undertaking the whole telephone 
business, 49 

Caldwell, James, Motion of, re- 
garding refusal of Post Office to 
grant licenses to local authori- 
ties, 178; withdrew motion, 191 

Calls, Rates for, in London area, 
276 

Cameron, Dr. Charles, moves the 
nationalization of the telephone, 
47; leader in cutting price for 
telegrams, 89 

Capital invested in a new industry, 
Proper return on, 38 

Capital investment required, 308-9 

Capitalists the brains of industry. 
362-63 

Cardiff Exchange, 26 

Cash investment, Earnings upon, 35 

Cavendish, Lord Frederick, on the 
pressure from telegraph clerks as 
a warning to the Government, 24 

Central battery speaking, 325-26 

Chamberlain, Joseph Austen, de- 
fends London Agreement of 
1901, 277-78; on wireless teleg- 
raphy, 338-39 

Chambers of Commerce, The great, 
opopsed to municipalization, 202 

Charges, reduced to diminish temp- 
tation to outsiders to go into the 
business, 35; for long distance 
telephone messages, 59; Parlia- 
ment asked to fix maximum, 89- 
90, 93, 94, 189, 204; maximum, 
a question between Government 
of the day and Parliament, 205, 
206 

Charges for London telephone area, 
i27n; to be prescribed by Post- 
master General, 252, 254; joint 
tariff of, established, 275-76 

Charges of violation or neglect of 
duty against Telephone Company 



INDEX 



367 



unsupported by conclusive evi- 
dence, 260 

Chisholm, Bailie S., on reasons for 
action of Glasgow Corporation, 
158-59; contradictory statements 
by, 164, 170, 170-71 

Cities, Number of, granting under- 
ground way-leaves, 96-97 

Civil servants, Political and finan- 
cial danger from increase of, 

242-43 

Civil service a source of danger, 
47-48, 61 

Clare, H. E., on need of trunk 
line facilities, 66-67; on absolute 
veto given local authorities, 87- 
88; authorized to represent Com- 
mittee of Association of Munici- 
palities, 94; on compulsory sale 
at structural value, 121-22; sig- 
nificance of testimony of, 122- 
23; on contracts made by Na- 
tional Telephone Company, 204; 
on local jealousies in Liverpool, 
265 

Colquhoun, James, on effect of pro- 
tective clauses in Glasgow electric 
railway Act, 140-41; on reasons 
for action of Glasgow Corpora- 
tion, 160-61 

Commissioners of Sewers of Lon- 
don refuse underground way- 
leaves to Postmaster General, 
133-34; defeated in the courts, 
134-35 

Competition, Allegation of unfair, 
26-28; increased, from telephone 
unwelcome, 42; Post Office re- 
serves right to authorize, 56; 
bad faith of Government regard- 
ing, 62; favored by Mr. Han- 
bury, 183; opposed by Mr. 
Morley, 198-99; and by J. C. 
Lamb, 199-200; recommended by 
Select Committee, 215-16; advo- 
cated by A. Binnie and A. R. 
Bennett, 217-18; rectitude of in- 
augurating, 223-24; potential, to 
be established, 227; all-round, 
authorized, 239-40; unfair pro- 
vided for, 255, 258; municipal, 
abandoned as an utter failure, 
260-61; unfair, 272; unfair re- 
commended by Select Committee, 
306; rejected by Government, 
306 

Competition, Municipal, with Na- 



tional Telephone Company, a 
failure, 7 

Competition and the possibility of, 
Wide difference between, 26, 119- 
20 

Concessions, Minor, to National 
Telephone Company, 57-58 

Conditions imposed in way-leave 
contracts, 95-97 

Conservative Party, Bad faith of 
Government under, regarding 
competition, 62 

Conservative Salisbury Ministry, 
The, accepted Report of Select 
Committee of 1898, 237; the 
Balfour Ministry in 1905 re- 
pealed the legislation of 1899, 
237 

Consolidated Fund, $10,000,000 ap- 
propriated from, for telephone 
improvements, 240 

Consolidation, Motives for, 31-32; 
greater efficiency, 31; a united 
company could obtain better 
terms from the Government, 32; 
fusion effected on basis of mar- 
ket values, 32 

Contracts with subscribers for 
private way-leaves, 77-78, 79n 

Control, Break of continuity of, 
between local and long-distance 
lines, 70-71 

Cost per subscriber's line, 179-80, 
181 

Cost price not a proper basis for 
sale, 121 

Cost to make trunk service ade- 
quate, 68 

Davies, Dixon H., on money spent 
by Municipal Corporations in 
opposing private companies, 246- 
47 

De Forest Wireless Telegraph Syn- 
dicate refused a license, 341 

Delays, Serious, in trunk service, 
68 

Dimsdale, Sir Joseph, moves for 
suspension of Agreement, 276- 
77 

Disappointments at result of state 
ownership of the telegraphs, 24- 
25; at failure of promises of 
agitators, 276 

Disillusionment of leaders of po- 
litical parties, 25 



368 



INDEX 



Disraeli Ministry refuses to take up 
telephone business, 25 

District service companies ham- 
pered, 343 

Dividends declared by telephone 
companies, 35; Parliament asked 
to fix maximum, 89-90, 93, 94; 
paid by National Telephone Co., 
105; accusations regarding, 113 

Dockwra, William, and his penny 
post, 344 

Dundee, Experience of first Tele- 
phone Company of, 154 

Earnings upon cash investment, 35 

Earth-return circuit the main cause 
of inefficiency, 155-56 

Eccles, Opposition of, to coopera- 
tion with Manchester, 264 

Economist, The, on N. M. Roths- 
child & Sons financing the New 
Telephone Co., ioin 

Edinburgh refused way-leaves and 
put in municipal twin-wire plant, 
94-95; misled by London Com- 
mon Council, 136; obstructs Post- 
master General, 173; hostility to 
National Telephone Co., 173-74 

Electric Light station, public cen- 
tral, Exclusion of the, from 1882 
to 1888, 98 

Electric Lighting Act of 1888, Re- 
fusal of several Governments to 
amend the, 97-98 

Electric lighting industry, 123 

Electric power supply industry, 123 

Electric street railway industry, 
Paralysis of, 98 

Electrical Revieiv on the Glasgow 
purchase, 322-23 

Electrician on wireless telegraphy, 
340 

Employees, Huge army of over- 
paid, 71 

Engineering estimates of New Tele- 
phone Company approved, 100; 
shown to be unreliable as to 
outlay and income, 103; of Lon- 
don County Council, 105-7; L C. 
Lamb on, 107-8; compared with 
cost to Post Office, 109; con- 
tradicted by experience of the 
Post Office, 113; of W. H. 
Preece, 206 

Engineering on the Glasgow pur- 
chase", 323 

Equity, Question of, in parliament- 



ary repudiation, 236, 257-58; in 
Government's demand for inter- 
communication, 286 

Estimates and outcome, Divergence 
between, 109, 113 

Exchanges, Multiplication of, for 
lack of way-leaves, 78-79; average 
distance from subscribers' premi- 
ses, 106; small, operated by Post 
Office, i8on 

Experience and not estimates should 
be followed, 108, 120 

Extensions, unprofitable, Difficult 
for Government to resist calls 
for, 48, 65 

Fallacy, An absolute, circulated by 
the Common Council of London, 
135, i37 

Fawcett, Henry, Postmaster Gen- 
eral, Announcement of, in Com- 
mons, regarding telephone li- 
censes, 11-12; usurpation of 
power in ruling of, 14-15; an- 
nounced change of policy, 17-18; 
on request of United Telephone 
Company, 17 

Fergusson, Sir James, on the pur- 
chase of the trunk lines, 45-46; 
opposed nationalization of tele- 
phone, 47, 65; the civil service 
a source of danger, 47-48, pres- 
sure on, to make Wolverhampton 
a separate area, 53-54; on giving 
telephonic facilities, 67; opposes 
giving statutory powers to New 
Telephone Company, 85-86; fa- 
cilitated the amalgamation of the 
two companies, 102; on maxi- 
mum charges, i89n; on service 
to small places, 212, 244; on the 
harmony between the Post Office 
and the National Telephone 
Company, 240-41 ; reply to Mr. 
Hanbury, 250-51; on unfair com- 
petition, 272 

Financiers, Faith of, in the rights 
of private property, when in con- 
flict with public interests, shaken, 
361-62 

Flannery, Fortescue, waiting for 
telephone over three years, 79-80 

Forbes, J. S., on cost of private 
way-leaves in London, 78; on 
multiplicity of exchanges in 
London, 79; on engineering esti- 
mates of New Telephone Com- 



INDEX 



369 



pany, 103; on why London was 
badly served, 137-38; admits in- 
efficiency, 143: on necessity for 
way-leaves in Glasgow, 144 
pledges the best service, 144; on 
cost of the Glasgow inquiry, 171 
oil cost of subscribers' wires 
181; pledges of, for the Com 
pany, 187-88; replies to Han 
bury's queries, i88n; vigorous 
speech for Company, 191; on 
reasons for relatively high tariffs, 
196-97; on sale of trunk lines, 
231; reliance on Mr. Goschen's 
speech, 232-33; on wages, 249- 
50; on efforts to conciliate the 
Government, 273-74; on new 
business of the Company for 
next five years, .309 

Fowler, Sir H. H., on difficulty of 
raising capital under expiring 
franchises, 291-92 

France, Log-rolling and bribing in 
state railway system in, 72 

Franchises, Short-lived, with com- 
pulsory sale, check investment of 
capital, 122-23; vacillating policies 
regarding, 123; Mr. Forbes on 
investment under, 197 

Gaine, W. E. L., Argument of, for 
large local areas, 52-53; on Gov- 
ernment's promise of way-leaves, 
57; on rate of subscription with 
access to a trunk line, 64; on 
need of more trunk wires, 67; on 
mileage of wires in place on 
sufferance, 76-77; on attitude of 
London local authorities, 79; on 
the ethics of Sir A. J. Russell, 
95; transferred operators to Post 
Office exchange in Glasgow, 143- 
44; on cost per line, 179; mis- 
quoted by Mr. Hanbury, 180-81; 
on mileage of wire in place by 
sufferance, 196; on measured 
service, 198; Mr. Morley on 
competition, 198-99; on contracts 
made by National Telephone 
Company, 204; on jealousies of 
local authorities, 265; on difficulty 
of raising capital, 293-94; on the 
hard bargain in Agreement of 
1905, 299; on par value of shares, 
301; on modern character of the 
plant, 303; on rental for under- 
ground wires, 309-10; on in- 



efficiency of overhead metallic 
circuit system, 316; on policy of 
Telephone Co., 320-21 

Gavey, John, on locating responsi- 
bility for delays, 71; on operat- 
ing expenses, 111-12; on over- 
loading and cost of calls, 207-8; 
on losses due to progress of in- 
vention, 284-85; on duplication 
of provincial plant, 290; on auto- 
matic signalling, 325 

General International Wireless 
Company refused a license, 341 

Gladstone Ministry refuses to take 
up the telephone business, 25 

Glasgow, No space for private 
wires from London to, 70; serv- 
ice in, adequate, 152-53; charges 
in, not unreasonable, 153-54; 
continued inefficiency of, due to 
refusal of way-leaves, 157; 
tariffs established, 317; tariffs of 
National Telephone Company in, 
317-18; subscribers to Municipal 
Telephone Exchange, 318; to 
National Telephone Company, 
319; beaten to a stand-still, 319; 
advantages for Glasgow, 319-20, 
handicap on Telephone Company, 
320; plant purchased by Post- 
master General, 321-23; plant be- 
come obsolete, 323-24, 326; pro- 
portion of expenditure to revenue 
in, 326n; to be reequipped, 327; 
new tariffs, 327-28; rejects pur- 
chase offer of Telephone Co., 
328; the statesmen of, 354; treat- 
ment of James Watt in, 355 

Glasgow, see also, Jameson, An- 
drew, Commissioner, report 

Glasgow, Corporation of, has never 
granted way-leaves to National 
Telephone Company, 6; venture 
of, with telephone business a 
failure, 7; reason for refusing 
way-leaves, 94; put municipal 
wires underground, 95; misled 
by London County Council, 136; 
chapter on the Glasgow episode, 
139-76; obtained a Private Act 
authorizing electric street rail- 
ways, 140; charged that National 
Telephone Company deterred in- 
stallation, 140-41; acts on an 
anonymous estimate, 142-43; ap- 
plied for telephone license and 
denied underground way-leaves, 



370 



INDEX 



Glasgow, Corporation (continued) 
143; responsible for inefficient 
service, 157, 164-65; refusal of 
way-leaves by, unreasonable, self- 
condemned and inconsistent, 157- 
65, 182; inexpedient to have two 
systems, 166-67; P° s t Office 
might establish underground 
metallic circuit, 168; Commis- 
sioner recommends a license for, 
169; obstructs Postmaster Gen- 
eral, 172; appeal to the Railway 
and Canal Commissioners decided 
against, 172; the quarrel delayed 
completion of trunk line circuits, 
173; recent electric light and 
street railway policies, 174-75; 
overcrowded population of, 174- 
75; planned to destroy property 
of National Telephone Company, 
255; disregard of public con- 
venience by, 286; beaten to a 
standstill, 288; demanded breach 
of a Parliamentary contract, 304, 
311; began telephone plant in 
1900, 314; actual cost, 314; laid 
its wires underground and re- 
fused National Telephone Com- 
pany permission, 314 

Glasgow inquiry, Cost of the, 171 

Glasgow municipal telephone ex- 
change, Experience of the, 114 

Good-will of the great business, No 
consideration given for the, 299 

Goschen, G. J., opposed nationali- 
zation of telephone, 47; Govern- 
ment should not extend its 
functions, 49; on Government's 
policy toward competition, 56, 62; 
on purchase of the trunk lines, 
224-27; statements by, 233-36 

Government unwilling to engage in 
further industrial ventures, 3; 
granted restricted licenses to tele- 
phone companies, 4; placed in- 
terests of national treasury above 
rights of the public as users of 
telephone, 4; granted way-leaves 
to National Telephone Company, 
5; contracted to buy its property 
at end of 191 1, 7; declines to 
buy telephone patents, 9, 28; un- 
successful effort of, to protect 
state telegraphs from telephone, 
9; protects by restrictions on li- 
censes, 12-13, 28; offer of, to 
build trunk lines, 13; relaxed 



restrictive measures, 16-18, 28, 
39; reserved right to compete 
with United Telephone Company, 
18; to have option of purchase of 
plants, 18; opposed to rate-aided 
competition, 19-21; must seek 
protection in local guarantees, 21; 
warned against business under- 
takings, 24; taught its weakness 
in protecting treasury against 
illegitimate demands, 34; did not 
dare dismiss the National Tele- 
phone Company's Bill of 1892, 
41-42; buys trunk lines of Na- 
tional Telephone Company at 
cost of construction, 43, 61, 224- 
27; reasons for purchase, 45-46; 
opposed to nationalization of tele- 
phone service, 47, 61; alarmed at 
competition of telephone with 
telegraph, 47; policy toward au- 
thorizing competition, 56, 62; 
promised way-leaves, 57, 86-87; 
should have reformed administra- 
tion of telegraphs, or purchased 
entire telephone system, 61; bad 
faith of Conservatives regarding 
competition, 62; fear of "log- 
rolling," 64-65; compelled Post 
Office to refuse doubtful ex- 
tensions unless guaranteed, 65; 
unable to husband its resources, 
71; how money is wasted by, 71- 
72; refused to allow Bills for 
way-leaves, 82-83, 85-86; fears 
the telephone, 85-86; yields to 
the Association of Municipal Cor- 
porations, 57, 87; gave absolute 
veto power to local authorities, 
87-88; refused rights of way 
from 1880 to 1892, 97, 205; co- 
operates with National Telephone 
Company, 189-90; agreed to a 
Select Committee on municipal 
telephones, 191; persistently re- 
fused way-leave powers, 205; 
reasons, 206; Mr. Goschen's 
policy in buying trunk lines, 224- 
27; issued Treasury Minute, 227- 
28; persistently refused conces- 
sions, 236; not free to inaugurate 
general competition, 236; opposed 
to nationalization, 242; refused 
Telephone Co. way-leaves on 
railway property, 270-71; sup- 
ported County Council's policy, 
272; exacted free intercommuni- 



INDEX 



371 



cation in 190 1, 280; disregard of 
public convenience and the de- 
mands of rectitude by, 285-86; 
broaches purchase of provincial 
plant, 287; agreement to pur- 
chase, 294, 311; acquires sub- 
marine cables, 337; reasons for 
restricting wireless telegraphy, 
341-42; desire of to acquire the 
profits of the Telephone Com- 
pany, 347; attains the object of 
its long desire, 359 

Governments, Popular, cannot hus- 
band their resources, 71-72 

Great Britain, Money wasting ex- 
perience of, typical, 72-73 

Great Britain, Story of telephone 
policy of, resembles story of 
municipal ownership in, 348 

Guarantee of specific revenue re- 
quired for extensions of doubtful 
prospect, 65 

Guernsey, States of, in dispute with 
Post Office, 201-2 

Hanbury, R. W., Political ambition 
of, 3; parliamentary leader in 
favor of municipal telephone ex- 
changes, 6; member of Cabinet 
in Salisbury Ministry, 6; at- 
tributed failure of Post Office 
Telephone exchanges to preferen- 
tial rates given by National Tele- 
phone Company, 26-27; admitted 
the Company never gave any, 
28; without sympathy of Post 
Office officials in his abuse of 
National Telephone Company, 60- 
61; attacks the National Tele- 
phone Company, 177-93; charges 
''watered" capital, 179; misquotes 
testimony of Mr. Gaine, 180-81; 
charges inefficient service, 181; 
his own answer, 182-83; favors 
competition and sympathizes with 
refusal of way-leaves, 183; in- 
sinuations as to large areas, 184- 
86; sug sts bad faith, 187; an 
unregul; :d monopoly, 188-89; 
charges personal discrimination, 
190; on maximum charges, 205; 
wants a general service, 212-13; 
treats National* Telephone Com- 
pany as criminal and an enemy 
of the public, 240; speech, on 
second reading of Telegraph Bill, 
against Telephone Company, 241- 



43; unfounded and offensive in- 
dictment of National Telephone 
Company, 243 ; inaccurate state- 
ment of statistics, 243-44; false 
charge that National Telephone 
Company picked out the best spots, 
244; alleged undue political in- 
fluence, 245; on statutory obliga- 
tions, contradicted at the moment, 
248; contradicts himself, 248; 
ignores contracts made by the 
Company, 249; on wages paid, 
248-49; no adequate reply made 
to, 250; on unfairness in buying 
plants, 254; made President of 
Board of Agriculture, 260; on 
necessity for intercommunication, 
272-73; false promise of rate 
for exclusive line, 276; on in- 
tercommunication, 280-81; som- 
ersault of, in 1902, 281-82; on 
cutting of rates by Post Office, 
282; mischievous effects of Han- 
bury's work summarized, 358-59 

Harris, George Robert Canning, 
Lord, on insufficiency of trunk 
service, 68; on ignorance of the 
other side of the question, 192-93 

Harrison, John, on reason for ask- 
ing veto power, 88, 183-84; au- 
thorized to represent Committee 
of Association of Municipalities, 
94; testimony of, 122 

Haward, H. E., on price to be paid 
for debenture stock and prefer- 
ence shares, 301-3 

Horse street railway industry, 
Paralysis of the, 98 

House-top way-leaves only obtained 
in some large cities, 57; difficult 
way of reaching subscribers, 126, 
129; an inefficient system, 141 

House-top wires, Capital invested 
in, practically thrown away, 285 

Hull, Municipal exchange of, obso- 
lete, 330; declines to sell, 331; 
tariffs in, 33 m 

Hull, Municipal telephone venture 
of, a failure, 7 

Hunter, Sir Robert, on maximum 
price and maximum dividend, 90, 
i89n; testimony before Select 
Committee of 1898, 195-96; on 
subscribers supplying supports 
for wires, 209; on securing way- 
leaves for provincial plant, 290- 
91; on Agreement of 1905, 298 



372 



INDEX 



Industrial pioneers, Losses carried 
by, 284, 349; violation of rights 
of, 362 

Industrial progress, British Govern- 
ment and municipalities incapable 
of contributing to, 363 

Industrial ventures, Government 
unwilling to engage in further, 
3; failure of governments in 
financing great, 73 

Industries, ready-made, Public may 
take, 349-50, 363; and must then 
protect, 3S0-51 

Industry, a new, Proper return on 
capital invested in a, 37 

Industry and capital, Relations of, 
362-63 

Inglis, Lord, on ownership of 
streets, 163 

Inquiry, Scope of the, 4-7 

Instruments, Security for care of, 
required, 209 

Intercommunication of exchanges, 
Efforts for, 193 

Intercommunication, Provisions for 
restricted, 252-53; and unre- 
stricted, 253; charges for, 253, 
258; bargained for, with eight 
years' extension of license, 269; 
not available in Metropolitan 
London, 270; granted by Tele- 
phone Co. in London area, 274; 
free, a one-sided bargain, 279-81; 
Government refused to grant 
free, in 1905, 281; granted by 
Telephone Company in Agree- 
ment of 1905, 297 

Invention, Losses due to progress 
of, 284-85 

Investment under expiring fran- 
chises, 291-93; the largest an- 
nual, 309 

Investments discouraged under 
short-lived franchises, 197 

Isle of Thanet Telephone Company, 
License of, bought by National 
Telephone Company for Post 
Office, 55 

Italy, Failure of state railway ex- 
periment in, "j2 

Jameson, Andrew, appointed Com- 
missioner to inquire into the 
Telephone Exchange Service in 
Glasgow, 148; reports, service 
not efficient, causes and com- 
plaints, 149-52; service is ade- 



quate, 152-53; charges not un- 
reasonable, 153-55, 182; earth- 
return circuit main cause of in- 
efficiency, L55-57; refusal of way- 
leaves unreasonable, 157-61; Cor- 
poration's evidence self-con- 
demned, 161, 184; sentimental 
and fanciful objections, 162; 
nature of public's property in the 
streets, 162-63, 175 5 inconsistency 
of objections, 164; Corporation 
mainly responsible for ineffi- 
ciency, 164-65; disbelieves in com- 
petition, 165-68; the reasonable 
solution, 168; the actual solution, 
168-69; implication from his 
comments on streets, 175; Han- 
bury's misrepresentation of, 181- 
82; Report of, and evidence taken 
before, referred to Select Com- 
mittee of 1898, 195 

Joicey, Sir James, on the giving of 
way-leaves, 251 

Jones, Stewart, on inadequacy of 
trunk lines at Newcastle, 70 

Kelvin, William Thomson, Lord, 
on the ugly side of human na- 
ture, 193 

Kennedy, A. B. W., approved en- 
gineering estimates of the New 
Telephone Co., 100 

Knocker, Sir Wollaston, approved 
Agreement of 1905 for Associa- 
tion of Municipal Corporations, 
300 

Lamb, J. C, on competition and 
the possibility of, 26, 120, 199; 
on unfair competition, 2.^ ; reply 
of, for Post Office, refusing to 
make large local areas, 53-54; 
on demand of local exchanges 
for trunk service, 64; admitted 
lack of trunk lines, 66; on 
difficulty of getting money from 
Treasury for trunk wires, 67; on 
the amalgamation of the two 
companies, 102; on the engineer- 
ing estimates of London County 
Council, 107-8; on the purchase 
by the Government, 1 18-19; on 
municipal competition, 119-21, 
200-2; on cost per subscriber's 
line, 180; opposed to competition, 
199; on extending service to 
small places, 211-12, 244; on de- 



INDEX 



373 



marcation of areas, 222; drafted 
Treasury Minute, 228; 011 Na- 
tional Telephone Company, 228- 
29; on local jealousies, 265-66; 
on granting more licenses, 338 

Lancashire and Cheshire Company, 
Offer of, to rent trunk lines, for 
free long-distance service refused, 
13, 29; field of operation of, 31; 
shares of taken at 131.25, 32 

Lancashire and Yorkshire, Develop- 
ment of telephone system in, 
checked telegraph revenue, 46 

Legislation can not take the place 
of education, 352 

License, The standard, binds Post 
Office to buy at expiration, 255- 
56 

Licenses, Restricted, granted to 
telephone companies, 4, 10, 12-13; 
merely waived monopoly rights 
and conferred no powers, 11-12; 
all to expire in 31 years, 13; 
regulations for, prohibitory, 16; 
all outstanding to be replaced by 
new, 18; if plants bought by 
Government on expiration of, 
price to be fixed by arbitration, 
18; Post Office system of, a re- 
striction of telephone service, 47; 
power conferred by, 55; nature 
of telephone, 75; demand on 
Post Office to change its policy 
of refusing, to local authorities, 
178; James Caldwell's motion re- 
garding, 178; Government state- 
ment regarding, 227-2%; taken 
out under Telegraph Act, 261, 
288-89; granting of more, open 
to objection, 338; for wireless 
telegraphy restricted, 340; re- 
fused, 341 

Limerick, Guarantee required for 
trunk line from, to Nenagh, 263 

Liverpool, 65 per cent of sub- 
scribers in, used trunk lines 
daily, 64; more trunk wires 
wanted between London and, 67; 
no space for, 69-70; local jealous- 
ies in, 265 

Local and parochial jealousies, 185 

Local authorities demanded veto 
power in order to charge for 
use of streets and to fix tariffs, 
5-6; veto power given to, and 
how used, 6; must be consulted 
for way-leaves, 11-12; oppose ex- 



tension, 86; given an absolute 
veto on way-leaves, 87; control 
charges, 89; adjoining, loath to 
act together, 52, 185; had no 
right to give permission to put 
wires underground, 75; could 
give power to place posts along 
public ways, 75; in London re- 
fuse way-leaves, 79; all but 
complete refusal of, to accept 
Telegraphs Act of 1892, 93-94; 
conditions imposed by, granting 
underground way-leaves, 95-96; 
practically no demand from, for 
telephone licenses, 177; list of 
places asking for, to May, 1898, 
i77n; demand that Post Office 
change its policy of refusing 
licenses to, 178; telephone serv- 
ice by, a failure, 213; given right 
to raise money for establishing 
exchanges, 251; thirteen took out 
licenses, 261; conservatism and 
jealousies of, causes of failure 
of Telegraph Act, 263; inability 
of adjoining, to cooperate, 264; 
experience of, with tramways and 
electric lighting, 266; took no 
advantage of Telegraph Act, 288- 
89 

Local exchanges, of three leading 
companies connected by trunk 
lines, 3 1 ; difficult for outside 
companies to organize, 100 

Local telephone areas, State to 
demarcate, 51-56, 61-62; prin- 
ciples of demarcation, 51-52; 
National Telephone Company de- 
sired large, 52; Mr. Gaines' 
arguments for, 52-53; J- C. 
Lamb's reply, 53-545 of London, 
185 

Log-rolling, Precautionary meas- 
ures against, 21-23; fear of, 63, 
64-65; practice of, 72; in France, 
Italy and Australia, 72-73 

London, City of, episode, 133-38; 
demand of, to prescribe charges, 
133; refused way-leaves to Post- 
master General, I33-34J courts 
decide against, 13 4-3 5 ; never 
gave way-leaves, 138; disregard 
of public convenience by, 286 

London, Corporation of the City 
of, has never granted way-leaves 
to the National Telephone Com- 
pany, 6; did not accept Marl- 



374 



INDEX 



London, Corporation of (continued) 
borough's retraction, 104; as- 
sertions of, contradicted, 113 

London, Metropolitan, Agreement, 
1901, 269-86; motion against, 
276-77; lost, 278 

London, Metropolitan, Telephone 
service to, at $50 a year, 3, 4; 
Edison Company announced it 
would establish telephone ex- 
changes in, 10; areas for tele- 
phones in, restricted, 12; tele- 
phone subscribers in, 15; no 
space for new wires to other 
cities from, 69-70; cost of private 
way-leaves in, 78; 18 central ex- 
changes in, 78; unsatisfactory 
service in because local authori- 
ties refuse way-leaves, 79; ob- 
stacles to twin-wire system in, 
80-81; underground way-leaves 
probable, 81; telephone area, and 
rates in, 110-11, 185; J. S. 
Forbes on why London was 
badly served, 137-38; four ex- 
changes in, where one would 
suffice, 196; Post Office to estab- 
lish a telephone plant in, 240; 
popular assumption of cost in, 
255; competition in, abandoned, 
260; Telegraph Act abandoned 
for, in two years, 281 

London and Paris, Metallic circuit 
system between, superior to sin- 
gle wire system in London, 41; 
success of, 47 

London County Council has never 
granted way-leaves to National 
Telephone Company, 6; did not 
accept Marlborough's retraction 
104; submitted engineering esti 
mates for a $50 a year service 
105; statements of, contradicted 
by experience of Post Office, 113 
chapter on episode, 125-32; re 
fused underground way-leaves 
125; adds new conditions to 
terms of agreement, 126; re 
jected offer of a measured serv 
ice, 128; new demands, and 
negotiations broken off, 128-29 
intervention of Post Office for 
130; never withdrew veto on 
underground wires, 132, 138; 
stupidly obstructive, 135-36; pro 
posed to ask from each sub 
scriber one support for wires 



208-9; "disturbed" at purchase 
from National Telephone Com- 
pany, 301 

Long-distance service of National 
Telephone Company, Compulsory 
sale of, 39-62; demand for the, 
43-44; motive of purchase of, 45- 
46; acquired by the State, 49- 
51; scale of charges, 59; Post 
Office fails to provide adequate, 
63-73; importance of an ade- 
quate, 64 

Losses carried by industrial pion- 
eers, 284; due to progress of in- 
vention, 284-85; due to play of 
national and municipal politics, 
285 

Lough, T., seconded motion against 
Agreement of 190 1, 277; moved 
rejection of Agreement of 1905 307 

Macfarlane, John, on reasons for 
action of Glasgow Corporation, 
159-60 

Manchester, Public pay stations 
not allowed in, 12-13; local com- 
pany wished to charge two cents 
per conversation, 13; 65 per cent, 
of subscribers in, used trunk lines 
daily, 64; no space for new wires 
from London to, 69-70; grants 
underground wires, 82; cost of 
putting in, 82; failed to secure 
cooperation of adjoining local 
authorities, 264; quarreled with, 
over tramways, 265 

Manchester, Mutual Telephone Com- 
pany of, Failure of, 154-55 

Marconi companies, Agreement 
with the, 340-41 

Marconi International Marine Com- 
munication Company, Contract 
of with Lloyds, 344-45 

Marconi patents offered to State, 
338 

Marlborough, Duke of, Letters to 
The Times on a $50 a year tele- 
phone, 3, 100; statement re- 
tracted, 4; retraction not ac- 
cepted by many, 4, 104; his 
promise and retraction, 99-114; 
promised a flat rate of $50 a 
year, 101; repudiates his previous 
statements, 10 1-2; convinced that 
engineering estimates were un- 
reliable, 103 

Metallic circuit, or twin-wire sys- 



INDEX 



375 



tern, Introduction of, delayed for 
years, 80; obstacles to, in Lon- 
don, 80-81; Parliamentary Com- 
mittee reported favorably on, 
84-85; estimated cost for, to 
serve 10,000 subscribers, 105-7; 
by W. H. Preece, 107; necessary 
for efficient service in large cen- 
ters, 143 

Metropolitan London Post Office 
Telephone Exchange, Subscribers 
acquired by, no 

Moncur, Provost, Testimony of, 
regarding Dundee Company, 154 

Money, Cost of obtaining, a legiti- 
mate part of cost of plant, 33 

Money, Waste of, by the Govern- 
ment, 71-72 

Monopoly, An injurious, would 
ensue, unless trunk lines are 
owned by the State, 50 

Monopoly of Telephone Company 
a qualified one, 346-47 

Monopoly, see Postmaster General's 
monopoly 

Monopoly, The Post Office, see 
Post Office 

Monsell, William, on pressure for 
extension of telegraphs, 23 

Morley, Arnold, opposed to munic- 
ipal telephone plants, 1 16-18; 
submitted draft of report dis- 
approving, 124; on demarcation 
of telephone areas, 186; opposed 
to competition, 198-99; on service 
in small places, 210-244 

Morton, A. C, a City of London 
statesman, 136-37; on cost of un- 
limited service in London, 300-1 

Municipal competition with Na- 
tional Telephone Company a 
failure, 7; possible, 52; objec- 
tions to, 53; Post Office gave no 
thought to, 55; Post Office ex- 
perts opposed to, 1 1 9-2 1, 200-2; 
abandoned as an utter failure, 
261, 289 

Municipal corporations in time of 
William IV., 354-55 

Municipal Journal, Destructive 
policy advocated by, 307; on the 
Glasgow plant, 328 

Municipal ownership of tramways 
and electric lighting, Experience 
of years in, 266, 336 

Municipal telephone exchanges, 312- 
36 



Municipal telephone plants, Post- 
master General Morley's opposi- 
tion to, 1 16-18; Mr. Hanbury on 
difficulty of establishing, 184-86; 
would prevent development in 
rural districts, 201; difficulties of 
administration of, 201-2, W. H. 
Preece opposed to, 202 

Municipal telephone ventures prove 
complete failures, 7 

Municipal telephones, Demand for, 
limited to Scotland, 122 

Municipalities, Desire of, to regu- 
late charges of National Tele- 
phone Company, 3 

Municipalities misuse power of 
veto, 93-94; recommended to re- 
fuse way-leaves, 94; from 1892 
to 1896 annulled the Act of 1892, 
97; care nothing for the public 
interest, 251 

Municipalities, telephone-owning, 

Demand of the, 300-3, 311; de- 
structive policy of, 306-7; in- 
ability of, to contribute to prog- 
ress, 335-36 

Munro, Thomas, on discontinuance 
of payments for way-leaves, 303-4 

Murray, Sir George Herbert, on 
the Agreement of 1905, 298 

National Telephone Company, Mu- 
nicipalities desire to regulate 
charges of the, 3; absorbed New 
Telephone Co., 4; watered its 
stock, 5; granted leave to erect 
poles and lay wires, 5; without 
way-leaves until 1897, 6; popular 
dissatisfaction with, 6; stock of, 
depreciated by Telegraph Act, 6- 
7; municipal competition with, a 
complete failure, 7; Government 
contracted to purchase property 
of at end of 191 1, 7; Parliament 
to decide on holding or selling 
same to local authorities, 7; 
compelled to sell trunk wires to 
Government, 19; charged by Mr. 
Hanbury with giving preferential 
rates, 26-27; no evidence of un- 
fair competition by, 27-28; field 
of operations of, 31; amalgama- 
tion of, with United, and Lanca- 
shire, 31; absorbed ten smaller 
companies, 3 1 ; motives for con- 
solidation, 31-32; fusion on basis 
of market values, 32; shares of 



376 



INDEX 



National Telephone Co. (continued) 
taken at par, 32; capitalization 
of new company, 32, 104; forty- 
two per cent, of "water," 32, 
104; neutralized by invested sur- 
plus, 34; net revenue of, 35; 
reduction of revenue, 36; plant 
of, reconstructed, 36; criticism of, 
for high charges, 37; compulsory 
sale of its long-distance service, 
39-62; service in 400 cities, 40; 
successes achieved by, 41 ; lodged 
Bills in Parliament for rights of 
way, 41, 82; Government did not 
dare dismiss Bills, 41-42; limited 
rights of way conferred on, 43; 
compelled to sell trunk lines, 43, 
61-62; trunk lines erected under 
license from Post Office, 44; 
annual rentals paid for, 44 n 5 
dependent on good-will of the 
government, 45; Bill authorizing 
$5,000,000 for purchase and ex- 
tension of trunk lines of, 50; no 
extension of license granted to, 
50; three years in settling terms 
of transfer, 51; the cash con- 
sideration, 51; relinquished right 
to establish local telephone areas, 
51; desired very large, and argu- 
ment for of Mr. Gaine, 52-53; 
to protect itself against municipal 
competition, 52; willing to pay 
for trenching on Post Office reve- 
nue, 53; request of, rejected by 
Post Office, 54; obliged to buy 
all outstanding licenses and turn 
them over to Post Office, 55; 
way-leaves conferred on, opposed 
by municipal vetoes, 56-57; minor 
concessions to, 57-58; worked 
trunk wires for, and harmonious 
relations with Post Office, 60; 
objection urged against purchase, 
63; erection of trunk lines a 
stimulus to local exchanges, 63- 
64; guaranteed annual revenue 
to Post Office, 65-66; gave notice 
of minimum delay of twenty 
minutes, 69; mileage of wire on 
sufferance, 76-77; contracts for 
private way-leaves, 77-78; mul- 
tiplicity of exchanges in London, 
79; unable to locate contracts in 
London, 79, 196; case of Mr. 
Flannery, 79-80; loss to, from 
erecting overhead wires, 81-82; 



Bill for, opposed by Government, 
86; request for right of appeal 
denied to, 88; Government in- 
terested in prosperity of, 89-90; 
contracts for underground way- 
leaves, 92-93; refused by Edin- 
burg, Glasgow and Brighton, 94- 
95; onerous conditions imposed 
on, 95-96; number of cities 
granting way-leaves to, 96-97 ; 
takes one-third of New Telephone 
Co.'s stock, 101; absorbs the 
Company with practically no prop- 
erty, 102; could have given Lon- 
don unlimited service at $50, 104; 
net earnings of Company, 104-5; 
surplus, 105; increase in London 
subscribers, no; divided field of 
London with Post Office, no; 
causes of public dislike of, 113; 
the Government's agent, 118; 
could not give satisfactory serv- 
ice without way-leaves, 121; first 
efforts for underground way- 
leaves in London, 125-26; sum 
spent on overhead twin-wires, 
126; reply to demands of Lon- 
don County Council, 127-28; 
charges for London area, i27n; 
offer of a measured service re- 
fused, 128; charged with refusing 
service, 129; laying wires under- 
ground, 130; Postmaster General 
secures injunction against, 130; 
grants free intercommunication 
to Post Office, 132; protective 
clauses in Glasgow electric rail- 
way Act, 140; trouble in Glas- 
gow, 141, 156-57; refused under- 
ground way-leaves in Glasgow, 
142, 145-48; admits inefficiency, 
143; transferred operators to 
Post Office exchange in Glasgow, 
144-45; offers to use pipes laid 
by Corporation, 146; plea of 
W. A. Smith for way-leaves, 146- 
48; position of Company entitled 
to consideration, 165-66; verdict 
of the Commissioner in favor of, 
169; charging normal tariff after 
laying metallic circuit system, 
171; hostility of Edinburgh to, 
173; Mr. Hanbury attacks, 177- 
93; augments popular miscon- 
ceptions of, 179; number of sub- 
scribers' lines, 179; charge of 
inefficient service, 181-83; of se- 



INDEX 



377 



curing large areas, 184-86; of 
bad faith, 187-88; Government 
cooperates with, 189-90; charge 
of giving preferential rates, 190; 
offers of, to give up, 190-91; no 
adequate reply to charges against, 
192; mileage of wire on suffer- 
ance, 196; inability of, to estab- 
lish measured service, 198; not 
a mere licensee, 199, 228; Post 
Office should take over the, in 
191 1, 200; should have sole con- 
trol, 203-4; right of, to refuse 
service, 208-10; policy toward 
exchanges in small places, 210- 
12; forbidden to erect any new 
exchanges, 212-13; what might be 
done by, 214, 216, 223; conces- 
sions to, to cease, 216; practi- 
cally exempt from competition, 
unwilling to sell trunk lines, 224, 
231; Government buys to break 
up monopoly, 225; to supply lo- 
cal service, 227; a working 
agreement between Post Office 
and, 228-29; requests Post Office 
not to grant license where ex- 
change is established, 229; asks 
concessions, 230-31; consented to 
sale of trunk lines, 231; Mr. 
Hanbury's renewed attacks on, 
241-45, 247-50; sixth application 
of, for statutory powers, 248; reno- 
vating entire plant, 248; con- 
tracts made by, ignored, 249; 
wages paid by, 249-50; must get 
consent of Postmaster General 
for new exchanges, 251, 261; 
conditions of extending licenses 
of, 252; complete argument in 
quoting Mr. Goschen's declara- 
tion of policy, 257; Report of 
Select Committee and Telegraph 
Act depreciated telephone se- 
curities, 258-59, 267-68; per cent, 
of net revenue for nine years, 
259; charges against unsupported 
by conclusive evidence, 260; ex- 
clusion of, from areas it had not 
occupied detrimental to public, 
262-63 ; depreciation of its prop- 
erty the object of Telephone Bill, 
267; met demands of Government 
most fairly, 269; harassed by 
Government, 270-71; Agreement 
of 1901 with Post Office, 274-79; 
grants intercommunication and 



identical rates, 274; effect of 
Agreement on shares of, 278; 
losses of, 285; Government 
broaches purchase of provincial 
plant of, 287; held 90 per cent, 
of business outside of London, 
289; paying for way-leaves, 290; 
Post Office makes agreement to 
purchase provincial plant, 291; 
difficulties of, under expiring 
franchises, 291; capitalization of, 
292-93n; "water" more than eli- 
minated, 292; relinquished prefer- 
ential rights and accepted maxima 
and minima charges, 296-97; 
granted free intercommunication, 
297; guarantees efficient service, 
297; amount spent on plant, and 
outstanding securities, 301-3; 
Government saved Company from 
serious loss, 306; new business 
of Company until 1911, 309, 311; 
installed overhead metallic cir- 
cuit system in Glasgow, 316; 
handicap on, 320; offer of, to 
purchase Glasgow plant, refused, 
328; telephones of, in use at 
Hull, 331; buys exchange at 
Swansea, 332; unfair criticisms 
of, 345-46; transactions between 
the Government and the, 346; 
results of the public opinion that 
profits of were unduly large, 
357; summary of Mr. Hanbury's 
work against the, 358-59; sum- 
mary of the financial difficulties 
of the, 360-61 

Nationalization of telephone service, 
Government opposed to, 47 

New South Wales, Burdens on tax- 
payers in, 73 

New Telephone Company absorbed 
by the National, 4; ready to 
cooperate with Post Office, 44; 
Bill of, for way-leave powers, 
defeated by Government, 85-86; 
possessed two Post Office tele- 
phone licenses covering the United 
Kingdom, 100; New Tel. Co. had 
difficulty in obtaining telephone 
instruments and developing local 
exchanges, 100; the Duke of 
Marlborough on the, 100-1; sup- 
ported Government's Bill to 
acquire trunk lines, 101; stock of 
placed on the market, 101; ab- 
sorbed by the National, 102; 



378 



INDEX 



power of, under its licenses, 103; 

promises in Prospectus of, 104; 

estimates of, contradicted by 

experience of Post Office, 113; 

and of Glasgow exchange, 114 
New York Telephone Company, 

Experience of, 284 
Newcastle-on-Tyne Exchange, 26 ; 

telephone area at, broken up, 54; 

inadequacy of trunk lines at, 70 
Newland, John L., engineering 

estimates in 1895 for a $50 a 

year London service, 105-6, 119; 

had no practical experience, 107 
Newspaper press, Money wasted on 

unprofitable rates for telegraphic 

correspondence of the, 72 
Non-subscribers, Permission given 

to call, to answer telephone in 

same area, 57-58 
Northcote, Sir Stafford, on State 

ownership, 21-22 
North Shields telephone area, 54 
Norway and Sweden, Experience of, 

119, 213, 261 
Norwich grants leave for under- 
ground wires, 93 

Official caprice vs. public con- 
venience, Justice Wright on, 
134-35 

Operating expenses, John Gavey on, 
111-12 

Ownership, Public vs. private, 345; 
see also Public Ownership 

Parliament, and the public too busy 
to read blue books, 192; not free 
to inaugurate general competition 
in 1898, 236; authorizes all-round 
competition with the National 
Telephone Company, 239-68; 
question of equity in, 236, 
257-58; treatment accorded by, to 
telephone promoters, 259; dis- 
regard by, of niceties of de- 
mands of rectitude, 286 

Parliamentary contract, Glasgow 
asks for a breach of, 304-5; 
recommended by Select Committee, 
305; refused by the Government, 

305 

Patent laws, Attempt of Post- 
master General to annul the, 15 

Pember, E. H., suggests proviso 
to protective clauses, 141-42 

Pioneer work left to private enter- 
prise, 348-49 



Plant, Replacing an obsolete, a 
proper charge to operating ex- 
penses, 38 

Poles and wires, Power to erect and 
lay, not conferred by Government 
licenses for telephones, 1 1 ; must 
be obtained from local authorities, 
11-12; had to be erected mainly 
as private property, 76 

Policy, Telephone, of the Govern- 
ment, 4; modified, 5 

Political expediency, Summary of 
the effects of giving way to, 
357-59 

Politics, Game of, incapacitates 
players for management of in- 
dustrial ventures, 73 

Pollock, Baron, Postmaster General's 
suit for infringement of monopoly, 
tried before, 10 

Portsmouth, Municipal telephone 
venture of, a failure, 7; grants 
underground way-leaves, 93 ; 
municipal exchange in obsolete, 
333 

Postmaster General brought suc- 
cessful suit against Edison and 
Bell companies for infringement 
of his monopoly, 10; offers 
licenses to United Telephone 
Company, on waiver of right to 
appeal, 10; licenses conferred by, 
merely waived monopoly rights, 
11; right retained to establish 
exchanges and license other com- 
panies, 11; on granting telephone 
licenses, 11-12; attempt of, to 
compete with telephone companies, 
14-15; to annul patent laws, 15; 
conduct of, morally indefensible, 
16; announces purchase of tele- 
phone trunk lines, 45-46; army 
of employees under the, should 
not be increased, 49; on lack of 
space for new wires from London 
to other cities, 69-70; powers of 
enlarged, 83; had power to lay 
wires under streets, 84; powers 
of, under Telegraph Acts of 1892, 
93-94; opposed to municipal 
telephone plants, 116-18; to 
competition by the Post Office, 
124; denied underground way- 
leaves in Glasgow, 172; won on 
appeal, 172; should have sole 
control of telephones, 203; 
scientific advisers of the, praised 
the work of the Telephone Co., 



INDEX 



379 



241 ; to issue licenses to local 
companies, 252; to fix charges, 
252, 254; to provide underground 
wires at a rent, 274-75; bound in 
license to buy plants of compet- 
ing companies but not of Tele- 
phone Company, 256; to buy 
Metropolitan plant in 191 1, 275; 
to buy provincial plant in 191 1, 
294-95; also private wire plant, 
295; to lay underground wires at 
a rental, 296; will grant no 
further licenses, 298; purchases 
Glasgow plant, 321-23; raises 
tariffs, 327-28; buys Brighton 
telephone system, 329-30; offer 
of, to Portsmouth, 333; rights of 
waived, not given away, 346 
Post Office throws every possible 
difficulty in way of development 
of telephone, 16; granted leave 
by Treasury to establish telephone 
exchange systems conditionally, 
19; prohibited from canvassing for 
business, 19-20; must show 
telephone exchanges would be 
profitable, 20-21; possibility of 
competition by, productive of 
good results, 25-26; number of 
employees in, should not be largely 
increased, 47-48 ; unwilling to com- 
mit itself in municipal competition, 
53; unwilling to build trunk wires 
to more than one exchange in a 
local area, 53; broke up the 
Birmingham area into four, 54; 
charges for use of trunk wires 
and has failed to increase 
facilities, 54; aimed to serve 
public convenience, 55; reserved 
right to authorize competition, 
56; fails to provide adequate long- 
distance service, 63-73; charged 
with grave defects in trunk 
service, 68; opened its London 
telephone system in 1902, 108; 
cost of "spare" plant, 108-9; 
opposed to unlimited service, no; 
retained it, and established a 
measured service rate, no-n; 
what experience of, shows, 113; 
telephone receipts and expenses, 
ii3n; experts of, opposed to 
municipal competition, 119; offers 
service on a reasonable demand, 
120; Mr. Morley opposed to 
competition by, 124; joined 



London County Council against 
National Telephone Company in 
every way, 130-32; false claims 
attributed to, 135-37; grants 
London way-leaves at its pleasure, 
138; gave free hand to telephone 
exchanges, 191; should take over 
the National Telephone Company 
in 191 1, 200; tendered no esti- 
mates in 1898, 206; opposed to 
the flat rate, 206-7; established 
both rates in London, 207; filled 
place of National Telephone 
Company in new fieldsj 214; 
purchase by, out of the question, 
242; provided in 1899 with 
money for telephone plants, 240, 
251; less than one half expended, 
263; conservatism of, 262-63; 
demanded guarantee, 263; could 
not promise intercommunication in 
London, 270; unfair competition 
of, 271-72; enjoined Telephone 
Company from laying wires under 
London streets, 273; agreement of 
1901 with Telephone Co., 274-79; 
agreement of 1905 to purchase 
provincial plant, 291; reasons for 
restricting wireless telegraphy, 
341-42. 

Post Office, see also Government. 

Post Office monopoly of the tele- 
graphs, a great interest, 45; 
telephones included in, 86 

Post Office royalty of ten per cent, 
78 

Post Office Telegraph Monopoly, 
The, and wireless telegraphy, 
337-47; open to attacks of new 
inventions, 338; perpetual, 351 

Post Office telegraphs, Traffic of, 
threatened, 40; losing business, 
43; protected from telephone, 58; 
Government opposed telephones 
as competitors of, 85-86 

Post Office Telephone Exchange 
system, Attitude of Government 
toward, 19 

Post Office telephone plants, Right 
to establish reserved, 56 

Power, Misuse of, by Government 
and municipalities, astounding, 
354 

Preece, W. H., on unfair competi- 
tion, 2j; on "a free hand" for 
the Post Office, 27; estimate of 
cost of overhead and under- 
ground system for London, 107; 



380 



INDEX 



Preece, W. H. (continued) 
opposed to municipal licenses, 119, 
202; on the stupidly obstructive 
city people, 135; tendered esti- 
mates, 206; would choose rural 
districts, 213, 244; time required 
for an alternative plant, 219; on 
good service of Telephone Co., 
248; on wages, 249; rural districts 
had been canvassed without suc- 
cess, 262; on cost of underground 
metallic circuit system outside of 
London, 313; on the Marconi 
Co.'s check to growth of wireless 
telegraphy, 344"45 

Preferential rates, Agreements and 
offer of National Telephone Co. 
not to give, 190-91 

Pressure, Parliamentary, and log- 
rolling, Precautions against, 21-22; 
Mr. Scudamore on, 22-23; from 
telegraph clerks on members of 
Parliament, 24-25 

Private lines, Number of, 179x1 

Private ownership gives rise to 
grave abuses, 353 

Private property, Should telephone 
attachments to, be allowed, 196; 
violation of rights of, 362 

Private rights of way, the almost 
sole dependence of telephone 
companies, 76; short notice con- 
tracts for, with subscribers, 77-78; 
cost of in London,, 78 

Private telephone lines, long-dis- 
tance, Question of supplying, 70 

Profits, Reasons for decline of, 
35-36, 37 

Property, Everybody's, safe for five 
months, 192 

Protective measures, Petty, 343 

Provincial Companies, Leading, 30-31 

Provincial telephone system must 
be purchased or duplicated, 
289-90; duplication impracticable, 
290-91; Post Office agrees to 
purchase, 291 

Prussia, Failure of Government of, 
in financing the state railways, 
73; surplus earnings used for 
current state expenses, 73 

Public, Failure of the, to discern 
its long-run interests, 363-64; 
inconvenience to, from State's 
purchase, 70; protection from, 83; 
rights of, completely disregarded 
by State and municipalities, 97-98 



Public authority has power to regu- 
late profits and to prescribe prices, 
176 

Public convenience, not official 
caprice, should govern boards, 
134-35; Mr. Hanbury on 272-73; 
effect of injunction on, 273-74; 
disregard of, by Government, 286 

Public distrust of National Tele- 
phone Co., Causes of, 113 

Public opinion confused by issue 
raised, 28*; the making of, 129-30, 
135-36, 169-71; summary of, 
355-57; of intelligence and in- 
tegrity needed, 247, 352; misin- 
formed, 347; break-down of, 
363-64; the more notable by 
reason of its previous success, 364 

Public ownership, Politics of, 123; 
fatal defect of. the policy and 
practice of, 348; open to grave 
abuses, 353 

Public pay stations not allowed to 
telephone companies, 12-13; per- 
mission given for, for verbal 
messages only, 18; leave to es- 
tablish, granted, 58 

Public servants, Complaints in 
House in behalf of, 48 

Public service companies, Public 
prejudice against, 356 

Purchase terms named in Treasury 
Minute, 256-57. 

Question of equity in granting all- 
round competition, 236, 257-58 

Railway and Canal Commissioners, 
Judgment of, on way-leaves, given 
by Justice Wright, 134-35 5 to be 
arbitrators under Agreement of 
1905, 294-95 

Rates, Flat, demanded by London 
County Council, 126-27; by the 
public, 207; low, would mean 
ruin, 208 

Rates, General reduction of, out- 
side of London, 35-36; should be 
maintained at a fair point, 107-8, 
120, 200; for unlimited and 
measured service, 110-11; pro- 
posed Sheffield, 198 

Rates, see also Tariffs 

Rectitude, Disregard for the niceties 
of, 286 

Restrictive measures relaxed, 16-18 

Revenue from State telegraphs, Mr. 



INDEX 



381 



Fawcett's anxiety to protect the 
17 

Revenue, Net, of National Tele- 
phone Company, 259 

Revenue, public, Protection of, 46, 
55; necessity for, 49-50 

Rothschild, N. M., and Sons, offer 
New Telephone Co's stock, 101; 
The Economist on, 10m 

Routes, Circuitous, for lack of 
way-leaves, 78 

Royalties paid by telephone com- 
panies, 12; of 10 per cent on 
gross receipts, retained, 18; 
average, in London, 197; amount 
of, paid to Post Office, 299 

Rural districts, Local authorities in, 
took no steps for telephones, 262 

Russell, Sir A. J., voiced bitter 
opposition to National Telephone 
Company, in Edinburgh, 94-95; 
W. E. L. Gaine on the ethics of, 
95 

Salaries paid by the State not fixed 
by market price, 48 

Sale, Compulsory, at structural 
value, 121-22 

Salford, Opposition of, to coopera- 
tion with Manchester, 264 

Salisbury Ministry, The Conser- 
vative, accepted report of the 
Select Committee of 1898, 238 

Salvesen, E. T., on National Tele- 
phone Co., 170; on freezing out 
the Telephone Co., from Glasgow 
by unfair competition 315; on 
impairment by electric railways, 
316; system should not be 
doubled, 317 

Scudamore, F. I., on pressure for 
better telegraph service, 22-23; 
amount expended by, on tele- 
graphs, 23 

Securities at a discount and at a 
premium, Difference between, the 
reward of investor's courage and 
ability, 33-34 

Securities sold, Difference between 
face value of, and cash obtained, 
part of cost of telephone plant, 33 

Securities, Telephone, depreciated, 
2 57-58 

Security, Right to demand, 209; 
required by gas companies, 210 

Select Committee of 1885, reported 
favoring same rights of way for 



telephone as for other public 
service companies, 37, 83-84; 
enlargement of powers of Post- 
master General and his licensees, 
83; recommended overhead wires, 
84; Government opposed to recom- 
mendations, 87 

Select Committee of 1895, J. b. 
Forbes, on negotiations between 
the two companies, 103; chapter 
on the, 115-24; J. W. Benn on 
the Agreement, 116; made no re- 
port, 123-24 

Select Committee of 1898 on 
licensing local authorities, 193; 
chapter on evidence presented be- 
fore, 194-214; testimony of Sir 
Robert Hunter, solicitor to Post 
Office, 195-96; Mr. Gaine on 
wires in place on sufferance, 196; 
Mr. Forbes on reasons for high 
tariffs, 196-97; on investment 
under short-lived franchises, 197; 
Mr. Gaine on measured service, 
198; Mr. Morley on competition, 
198-99; J. C. Lamb on rival 
systems and competition, 199-202; 
W. H. Preece opposed to muni- 
cipal telephone plants, 202; Asso- 
ciation of Municipal Corporations, 
203-4; Messrs. Clare and Gaine, 
204; Mr. Morley on service in 
small places, 210; J. C. Lamb, 
211-12; Sir James Fergusson, 212; 
summary of evidence before, 214; 
Report of, 215-38; recommends 
all-round competition, 215-16; 
not supported by the evidence, 
216; possible breach of faith 
suggested, 218-19; ignores state- 
ments by Mr. Forbes, 219; hypo- 
thetical arguments of, 220-21; in 
direct conflict with testimony of 
J. C. Lamb, 221-22; a restatement 
of Mr. Hanbury's charges, 223; 
reported that Post Office could 
end the monopoly of the Tele- 
phone Co., 237; the report 
knocked 25% off the securities of 
the Telephone Co., 238; testimony 
before, that municipal competition 
would prove a failure, 267; dis- 
regard of niceties of demands of 
rectitude, 286; A. R. Bennett on 
ascertained cost of Glasgow sys- 
tem, 313; D. Sinclair on cost of 
installation dependent on spare 



382 



INDEX 



plant, 313-14; why no overhead 
system can be efficient, 316-17 

Select Committee of 1905 on Tele- 
phone Agreement, 298; W. E. 
Gaine on the hard bargain, 299; 
on par value of shares, 301; de- 
mand of telephone owning munici- 
palities, 300-3; D. M. Stevenson 
on the tariffs, 300; A. C. Morton 
on cost of unlimited service in 
London, 300-1 ; H. E. Haward on 
price to be paid, 301-3; T. 
Munro on discontinuance of pay- 
ment for way-leaves, 303-4; D. 
M. Stevenson asks for a breach 
of a Parliamentary contract, 
304-5; request endorsed by, re- 
jected by Government, 305, 311; 
recommended unfair competition, 
306; rejected by Government, 306; 
H. B. Smith on municipal ex- 
perience, 334-35 

Select Committee on Post Office, 
1905, 70-71 

Select Committee on Purchase 
Bill reported favorably, 50 

Select Committee on Telegraphs 
Bill of 1892, 59; Bill of 1898, 
67, 76-77, 79; testimony before, 
143-44 

Select Committee on Telephone Serv- 
ice of 1895, Testimony before, 
87-88; Sir A. J. Russell to, 94-95; 
L S. Forbes, 144, 187; evidence 
taken before referred to Com- 
mittee of 1898, 195 

Service, adequate, Poor prospect of, 
310 

Service, inefficient, Causes of, 
149-52; complaints of little im- 
portance, 150-51; overhead single 
wire chiefly responsible for, 151; 
Hanbury's charge of, 181; Mr. 
Forbes on reasons for relative 
dearness of, 196-97; right of Com- 
pany to refuse, 208-10; in small 
places, 210 

Service rate, Measured, 110-11, 108; 
larger users of telephone opposed 
to, 198; tariff for, established, 
275-76; question of, 283 

Service rate, Unlimited, of $50 a 
year, promised for Metropolitan 
London, 4; of $25 demanded for 
large cities, 5; 110-11, 198; H. B. 
Smith on the, 207; tends to over- 
loading of lines, 207; tariff for, 



established, 275; for expediency, 
283 

Service, telephone, Public dissatis- 
faction with, 6; intense, 41; local, 
left to private companies, 48n; 
adequacy of, 118 

Sheffield rate, The proposed, 198 

Sinclair, D., on introducing twin- 
wire system, 80-81 

Sinking fund contributions a heavy 
burden, 197 

Smith, H. B., on responsibility for 
delays, 70-71; opposed to un- 
limited service rate, 207; on 
impossibility of raising capital 
without security of sale of plant 
at end of term, 294; on the 
Agreement of 1905, 298; on 
profits of Telephone Co., 321; on 
municipal experience, 334-35 

Smith, W. A., plea for way-leaves 
in Glasgow, 146-48 

Smith, W. H., strongly opposed to 
nationalization, 49 

South Shields telephone area, 54 

Southend, Guarantee required be- 
fore building extension to, 66 

Southport offered a license in 1903, 
261 

Spare plant, The, requires a large 
amount of capital, 109; amount 
of, needed, 314 

Stanley, Edward George Villiers, 
Lord, on necessity of refusing 
new wires from London to other 
cities, 69-70; on granting free 
inter-communication in 1905, 281, 
306; on infringement of a 
statutory right, 305; on Telegraph 
Act of 1899, 307-8; on the capital 
investment required, 308-9; de- 
fends Wireless Telegraphy Act, 
339; suspicious of innovations, 343 

Starke, Councillor, of Glasgow, and 
his anonymous estimate, 142-43 

State, The, as a competitor in trade, 
must not anticipate demand, 1:0; 
Sir S. Northcote on, 21-22; diffi- 
culties of the, as an employer, 
47-48; growing disposition of the 
public to place new duties on the, 
not wise, 49; acquires the long- 
distance telephone service, 49-51: 
to demarcate local telephone 
areas, 51-56 

State monopoly, Unchanging spirit 
of, 344 



INDEX 



383 



State Telegraphs, Game of politics 
in administration of, 350; pro- 
tection of, 351 
Statesmen, Certain, of London, 
denied way-leaves and then de- 
nounced the service, 81-82; one 
of the, 136 
Statistics, British and American, 

310 
Statutory obligations, 248 
Stephen, Justice, renders verdict 
that Postmaster General's mo- 
nopoly covers the telephone, 10; 
United Telephone Co. makes pre- 
parations to appeal from decision 
of, 10; decision of, accepted by 
patentees of apparatus for wire- 
less telegraphy, 11; no just 
ground for decision of, 16 
Stevenson, D. M.j on conservatism 
of local authorities, 264; declared 
the tariffs much too high, 300 
Stock watering, Legitimate, the re- 
ward of those who assumed risk 
of development, 34; neutralized 
by the investment of accumulated 
surplus, 34, 37 
Stockholm not comparable with 

Glasgow, 154 
Stournmouth-Oarling, Lord, pre- 
sided in Glasgow appeal case, 172 
Street railway industry, 123 
Streets, Nature of public's property 
in the, 162-63, I 75! much con- 
fusion regarding, 3 56-5 7 
Streets, Veto power demanded to 
secure payment for use of, 88, 
184 
Stuart, James, Witness coached by, 

129 
Subscribers, Estimated and actual 
increase in number of, 109-10; 
measured service, 11 1; cost of 
calls, 112; average annual sum 
paid by, in London, 197; asked to 
supply one support for wires free 
of charge, 208-9 
Subscribers to Telephone Co. out- 
number the Post Office's, 279; 
waiting for service, 292 
Subscription charges, Local authori- 
ties desire to prescribe, 88 
Subscription rate, Annual, with 

access to a trunk line, 64 
Submarine Telegraph Co. forced to 
sell to Government, 337; protec- 
tion for, 351 



Swansea, Municipal telephone 
venture of, a failure, 7; sold 
its obsolete exchange to Na- 
tional Telephone Co., 331-32 ; 
tariffs in, 332 

Tariffs, Unlimited user, 5; Mr. 
Hanbury insinuates that National 
Telephone Co. might raise, 187-, 
J. S. Forbes' pledges regarding 
the, 187-88; relatively high, 196- 
97; joint, established, 275-76; in 
Brighton, 329-30^ in Hull area, 
33m; at Swansea, 332. See also 
Charges, Rates 
Taxation, unequal, Viciousness of, 

and class legislation, 176 
Taxpayer, Safeguard of the, 46 

Telegrams, Charges for, cut nearly 
in two, 89 

Telegraph Act of 1899 enacted, 6; 
complete failure of, 7; did not 
give Post Office right of inter- 
communication, 131; provisions 
of, 251-54; did not bind Post- 
master General to buy any plants 
of Telephone Co., 254; effect of, 
on Mr. Hanbury's promotion, 260, 
267; a ludicrous failure, 261,267, 
288; two reasons for failure, 
263-65; outcome of Mr. Hanbury's 
onslaughts and Report of Select 
Committee of 1898, 266; aban- 
doned for London, in two years, 
281; achieved nothing that ne- 
gotiation could not have, 282-83; 
failed to accomplish Mr. Han- 
bury's wish, 289 

Telegraph business, Telephone 
makes inroads upon the, 40-41 ; 
increased cost of, 42; real 
danger of injury to, 45-46; reform 
in administration of, politically 
inexpedient, 61; no English city 
desired to engage in, 122 

Telegraph clerks, Pressure from on 
members of Parliament, 24-25 

Telegraph service, Mr. Scudamore 
on pressure for extension of, 
22-23; Mr. Monsell on, 23; cost 
of the system, 23 

Telegraph tariff, Reduction of, 
weakened Post Office telegraphs 
for task of competition, 42 

Telegraphs Act of 1892 enacted, 92 

Telegraphs Bill, 1892, approved by 



384 



INDEX 



Select Committee, 59, 82-83. See 
also Telegraph Act. 

Telegraphs, national, Desire of the 
State to protect the, from com- 
petition of the telephone, 3, 4; 
unsatisfactory, 4; protected, 12-13; 
results of Government's policy 
of protection of, 15; Mr. Fawcett 
on new policy for, 17-18; disap- 
pointments at results of experi- 
ment with, 24-25, 34; a warning, 
25; made unremunerative by 
Commons, 89-90 

Telephone, Efforts of companies to 
popularize, thwarted, 12-13, 28-29, 
39; spread of, alarms the Govern- 
ment, 40; increased competition 
from, unwelcome, 42; spread of, 
checked by terms of license, 45; 
commercial importance of, 67; 
Government fears the, 85-86; 
development of in rural districts, 
201; public demand for the, 293; 
popularization of the, 360, 361 

Telephone business, Disraeli and 
Gladstone ministries refuse to take 
up the, 25 

Telephone calls, Cost of, 207-8 

Telephone companies not allowed to 
build trunk lines, 13; permitted 
to build them, 18; licensed by 
Postmaster General, 86 ; resolution 
of Association of Municipal Cor- 
porations on, 93-94; should have 
a free hand, 191 

Telephone exchanges, Moribund 
state of, 26; cost of installing, 
104; confusion in multiplicity of, 
117; assumptions of cost, 206-7; 
not a single rural or urban dis- 
trict established a, 213; estab- 
lished in five cities, 213, 288; 
appropriation to make moribund, 
active competitors, 240; and to 
establish in non-populous dis- 
tricts, 240 

Telephone industry paralyzed, 14- 
15; checked in a manner which 
cannot be maintained, 50 

Telephone instruments difficult to 
obtain, 100 

Telephone licenses, Mr. Fawcett's 
announcement concerning, n-12; 
restrictions on, anu time limit for, 
12-13; attempt to issue, to rivals 
of telephone companies, 14; re- 
strictions on, relaxed, 16-17 



Telephone licenses of 1881 and 
1884, 8-29. See also Licenses 

Telephone plants, Purchase of, by 
the Government, 4; option on, 
18; Bill authorizing money for 
purchase of trunk wires, 50 

Telephone policy of the Govern- 
ment and the municipalities, In- 
jury done the people by the, 361- 
62 

Telephone policy of Great Britain, 
Four factors in shaping of the, 
3, 4; modified, 5; paralyzed the 
industry, 1 5 

Telephone service, Public demand 
for expansion of, 43-44, 46, 50 

Telephone services, Analysis of 
various, 320-m 

Telephone statistics, British, 15, 
18-19, 40, 310; United States, 
15-16, 310 

Telephone system, Superiority of 
metallic circuit, 41, 47 

Telephone systems, Number of, in- 
stalled by Post Office, 26 

Telephone tariffs, Unlimited user, 
demanded, 5. See also Charges, 
Rates, Tariffs 

Telephone wires, Eighty-four per 
cent, of, exist on sufferance, 76- 
77 

Telephones are telegraphs and 
therefore a monopoly of the Post- 
master General, 86, 189; would 
not be used by large masses of 
people, 117 

Telephones, Ratio of, to people, 
243-44; in use in London, 279; 
proportion of subscribers to, in 
United Kingdom and in United 
States, 310, 359-60 

Thompson, Sylvanus P., approved 
engineering estimates of the New 
Telephone Co., 100 

Times, The, on restricted licenses, 
16 

Traffic, Intra-city, and short inter- 
city, taken up by telephone, 42 

Tramways Act of 1870, Refusal of 
several Governments to amend, 
97-98 
Treasury, Lords of the, on Post 
Office telephone exchanges, 19; 
against active competition with 
telephone companies, 19-20; take 
precautions against log-rolling, 
21-23; abstention policy aban- 
doned, 25; not inconsistent with 



INDEX 



385 



necessary competition to correct 
evils, 25-26; conservatism of the, 
66. See also Government 

Treasury Minute upon proposals for 
development of the telephone 
system, laid before Parliament, 
49-50, 227-28 

Treasury, national, Interests of, 
preferred to rights of public, 4, 
46; specially cared for, 222 

Trunk lines, Telephone companies 
not allowed to build, 13; per- 
mission given all licensees to 
erect, 18; erected under license 
from Post Office, 44, 46; Bill 
authorizing purchase of, 50; 
erection of, a stimulus to local 
exchanges, 63-64; J. C. Lamb on, 
64; W. E. L. Gaine on, 64; 
Treasury rule on extension of, 
64-65; extended under guaran- 
tees, 66; evidence of failure of 
Government to supply, 66-71; J. 
C. Lamb admitted lack of, 66; 
H. E. Clare on need of, 66-67; 
Mr. Gaine's constant call for, 67; 
Sir James Fergusson on giving, 
67; Mr. Lamb on difficulty of 
getting money for, 67; Lord 
Harris on insufficiency of, 68; 
Mr. Gaine on trunk delays and 
cost to make service adequate, 68; 
notice of minimum delay required, 
69; Association of Chambers of 
Commerce on, 69; Lord Stanley 
on, 69-70; inadequacy of, at 
Newcastle, 70; sums spent in 
extending, 70; niggardly economy 
in expenditure for, 72; Treasury's 
interest in conserved, 222 

Tunbridge Wells, Municipal tele- 
phone venture of, a failure, 7; 
sold out to National Telephone 
Co., 333-34 

Twin-wire plant, Municipal, in 
Edinburgh, 94-95 

Twin-wire system, Unreasonable to 
require Company to install, in 
Glasgow, 156 

Underground way-leaves, Proba- 
bility of, in London, 81; granted 
in Manchester^ 82 

Underground wires, Postmaster Gen- 
eral had power to lay, 84; recom- 
mended by Committee of 1893, 
84-85; veto-power given to local 



authorities, 6, 87-89; first granted 
in Manchester, 92; Post Office 
claim of right to lay, 136-37 

United Telephone Company refused 
to submit to invasion of its 
monopoly rights, 14; Mr. Fawcett 
refuses request ana offer of, 17; 
Post Office reserved right to com- 
pete with, 18; confined to Metro- 
politan London area, 30; supplied 
instruments to other companies 
serving specified areas, 30; shares 
of taken at 250, 32; dividends 
for four years, 35; gave poor 
service, 36; refused rights of way 
in the streets, 37 

Unlimited service rate, 110-11; 
cost of, would exceed $50 a year, 
111-12; 254-55; joint rates, 275-76; 
Mr. Hanbury's false promise, 
276; established for expediency, 
283; A. C. Morton on cost of, 
300-1. See also Charges, Rates, 
Service, Tariffs 

Values, Increase in, properly 
recognized, 33-34 

Vernon-Harcourt, Sir William, on 
National Telephone Co., the 
Government's agent, 118 

Veto-power against way-leaves de- 
manded for local authorities, 5; 
granted, 6; the municipal, 56-57; 
absolute, on exercise of way- 
leave powers, 57; granted on de- 
mand of Association of Municipal 
Authorities, 87-88, 91 ; why de- 
manded, 88; absolute, under Act 
of 1892, 89; disastrous working 
of, in case of street railways, 91; 
municipalities misuse, 93-94; 
abuse of the, 353 

Victoria, Burdens on tax-payers in, 
73 

Watering stock, National Telephone 
Company, 34, 37, 104 

Watt, James, Treatment of, by 
Glasgow, 355 

Way-leaves, Right to grant, given 
to Postmaster General, 5; right 
to veto such grants demanded for 
local authorities, 5; power to veto 
granted, 6; not included in Gov- 
ernment licenses, 11, 18, 75; 
must be had from local authori- 
ties, 11-12; Special Committee 



386 



INDEX 



Way-leaves {continued) 

reported that companies ought to 
have, 37; promised by the 
Government, 57, 86-87; onerous 
terms demanded for, 57; the re- 
fusal of, 74-98; short notice 
contracts for private, 77-7&1 
value of, and removal of royalty, 
to National Telephone Company, 
78, 197; lack of, causes waste 
and inefficiency, 78-80; delayed 
introduction of so-called metallic 
circuit, 80; Bills asking for 
vetoed by Government, 41, 82-83; 
of Postmaster General should not 
be vested in telephone companies, 
93-94; conditions imposed by 
cities granting underground, 95-97, 
184; no satisfactory service with- 
out, 121; annual payment for, 
demanded by London County 
Council, 126-28; necessity for, in 
Glasgow, 144; refusal of, in 
Glasgow, unreasonable, self-con- 
demned and inconsistent, 157-64; 
Mr. Hanbury on, 182-83; Justice 
Wright and Commissioner Jame- 
son on, 184; Sir James Joicey on, 
251; to be granted to competing 
plants, 255; over railway property 
refused, 270-72; summary of op- 
position to granting, 354 

Winterbotham, W., on conditions 
in Glasgow, 143-44 



Wire, Single overhead, chiefly re- 
sponsible for inefficient service, 
151 

Wireless telegraphy, Patentees of 
apparatus for, acquiesce in Justice 
Stephen's decision, 11 

Wireless telegraphy, The Post Office 
monopoly and, 337-47; creates a 
scare, 338; A. Chamberlain on, 
338-39; licenses restricting, 340- 
41; limitations of, for protection 
of Post Office, 341-42, 351; ac- 
ceptance of restrictions, 345 

Wireless Telegraphy Act, 1904, 
339-40; gives Postmaster General 
full power, 339; renewed, 1906, 
340 

Wires, Mileage of, in place on 
sufferance, 76-77, 196 

Wires, overhead, Continuation of, 
recommended by Committee of 
1885, 84; cost of twin, 126 

Wires, Underground, to be laid by 
Postmaster General, 274-75; mile- 
age of, rented to Telephone 
Company, 279; rental paid, 280, 
309-10; to be laid for provincial 
plant, 296 

Wolverhampton area, The, 53-54 

Woodhouse, Sir James, questions 
Mr. Goschen, 237 

Wright, Justice, Judgment rendered 
by, in way-leave case, 134-35. 357 J 
implication from comments of, on 
streets, 175, 184 



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Australia, and those in which government interference is limited 
to control and regulation of rates, as France. The second half is 
occupied by a description of the development of the United States 
by railways operating under comparative freedom from such legis- 
lative control, and in showing the logical effect upon our trade 
and industry of such legislative direction."— Philadelphia Eve- 
ning Telegraph. 

"It is seldom that the study of a political economist of a cur- 
rent question attracts so much attention among observers of the 
legislative programme, now forming in this city, as Prof. Hugo 
R. Meyer's book, entitled "Government Regulation of Railway 
Rates," a study of the experience of the United States, Germany 
France, Austria-Hungary, Russia and Australia. Prof. Meyer 
represents the extreme advocates of letting the railroads alone. 
The book is interesting from the vigor and fearlessness with 
which its thesis is presented, and the mass of information that its 
author has collected from all parts of the world, exhibiting, as it 
does, extraordinary industry and scholarship." — Boston Tran- 
script. 

THE MACMILLAN COMPANY 

64-66 Fifth Avenue, New York 



Municipal Ownership in Great 
Britain 

By Hugo Richard Meyer 

Author of 

"Government Regulation of Railway Rates" 



xii+34-0 pp. 12mo, cl. $1.50 net 



"It is of value in laying emphasis on aspects of the question 
which the advocates of municipal ownership are prone to forget; 
and it should, consequently, make for more careful and intelligent 
discussion of the subject." — The Outlook. 

"In a very logical and interesting fashion Prof. Meyer pur- 
sues his investigation in Birmingham, Manchester, Sheffield, 
Liverpool, Bristol and Leeds. His judgment, we may say, is 
strongly against municipal ownership of public service industries 
on the broad theory that industrial development is due to individ- 
ual initiative. Industrial progress comes not from the people at 
large, whether acting as individuals, or in the corporate capacity 
of city or state. 'It comes solely from a comparatively small 
body of men of unusual imagination, daring, power of persuasion 
and executive ability.' Such men see possibilities of development 
and new ways of doing things where the average man sees nought 
but failure. 

"Prof. Meyer's book is a very important addition to the lit- 
erature of municipal ownership. He is thorough and logical, and 
the large volume of statistical material he has sifted is skilfully 
condensed. Unquestionably his series on public ownership of 
public service industries will have much influence with students 
of the related questions." — Boston Advertiser. 

"Mr. Meyer makes what seems to us a crushing statement of 
how the proposal to enrich the public by giving it a share of 
private profits ha's reacted to the public's detriment. Of disputa- 
tion there is no end, but statements of fact admit of no contro- 
versy except denial, and we assume that nobody will dispute Mr. 
Meyer's facts, however his ideas may be opposed."— New York 
Times. 1 7 O C% 

n x i b o 

THE MACMILLAN COMPANY 

64-66 Fifth Avenue, New York 









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